Having an understanding of what to seek in a CFO and the appropriate time to employ one is pivotal in developing a financial strategy that expedites your enterprise.
As your company progresses, financial planning and analysis (FP&A) becomes more intricate. Initially, during the early stages of business expansion, numerous founders seek financial guidance from their advisors while outsourcing practical duties, like bookkeeping.
Eventually, high-growth businesses attain a stage where they necessitate a permanent strategic asset. This is when a chief financial officer (CFO) becomes indispensable.
The role of a CFO typically involves directing the nuances of scaling: financial modeling, KPI evaluations, organizational design, and fundraising planning. It is a job that mandates numerical analysis skills, extensive financial expertise, and the capacity to communicate and contextualize financial information for the rest of the organization.
Maybe you are not ready to contemplate hiring a CFO, and that’s alright. There are plenty of FP&A resources accessible to bridge the gap until you are ready. However, if you are prepared or want to get a jumpstart on planning, we have you covered on what to seek in a CFO and the essential CFO qualifications to prioritize.
When Should a Startup Hire a CFO?
A startup should hire a CFO when its in-house finances are complex enough to require a full-time, dedicated strategic resource on a daily basis. Companies that are consistently welcoming new employees, regularly launching new products, preparing for a second round of equity financing, experimenting with different forms of debt financing or planning for international expansion should strongly consider hiring a CFO.
Strategic initiatives such as these are signs of a high-growth company — and it’s totally fine if you’re not there yet. Many companies are able to function without a CFO in their earlier stages. Before they hire a CFO, founders should look to advisors and investors for strategic financial guidance. Early on, you won’t need this advice every day.
Startups can outsource tactical initiatives such as bookkeeping before hiring a CFO. Some companies will make a more tactical hire — such as a controller or accountant to manage bookings and handle minor strategic matters — before finding their full-time CFO.
What qualities should you seek in a CFO?
As a mission-driven executive search company, Shrofile seeks candidates whose objectives are aligned with those of the company. If a CFO is to take charge of a business, their motivation for working should be in line with the company’s purpose.
However, having a shared purpose is not the only requirement for being a successful executive. To assist you in identifying the characteristics to look for in a CFO.
Here are seven other qualifications that a competent CFO should possess.
01. Ability to strategize
The responsibility of a CFO is to oversee and enhance the financial well-being of a business in the long run. Although a CFO may not be directly involved in budgeting or forecasting, they are expected to guide these procedures in a manner that propels the company closer to its objectives.
In addition to analyzing internal financial data, a CFO is required to utilize big data and industry knowledge during the financial planning process. While examining metrics such as business return on investment (ROI) and profitability is beneficial, external data can help establish benchmarks and spot trends.
A CFO must be capable of consolidating all of this information and creating a strategy that will enable your business to achieve its financial objectives.
02. Leadership skills
As a top-level executive, it is essential for the CFO to create and oversee a finance team, as well as foster robust relationships with internal and external stakeholders. It is critical to prioritize identifying and retaining the right individuals while developing clear talent acquisition and retention plans to establish a thriving and forward-thinking culture within the organization.
After assembling the team (or while in the process), the CFO can focus on cultivating relationships. Ideally, they should have the ability to navigate a diverse range of communication styles and present themselves as assertive and self-assured without coming across as overly aggressive.
03. Extensive financial knowledge
While it is essential for a CFO to possess a strong understanding of financial concepts, it is not a requirement for them to have a background in finance. Finance leaders often come from diverse backgrounds such as accounting, risk management, and business administration.
In most cases, CFOs hold a master’s degree in finance or a related field, or have obtained a professional certification such as a CPA.
A CFO who excels in their role must possess more than just accounting and financial skills. As a key executive in your company, you’ll need to depend on them in various ways. In challenging times, it’s crucial to have a CFO who can support the company in moving forward.
05. Excellent communication skills
Effective communication is a critical leadership skill that helps establish clear priorities, maintain staff morale, and ensure that all team members work towards the company’s mission and vision.
For a CFO, however, strong communication skills can be even more valuable. In small businesses, a CFO may need to prepare and explain financial reports to stakeholders. As a senior-level finance executive, a CFO may also represent the business at industry forums or panels.
Additionally, a CFO may need to field questions from shareholders at annual general meetings or during interviews.
Moreover, it’s important for a CFO to be comfortable with digital communication. While it’s not necessary for them to be proficient with all the tools used in-house, given the current remote work environment, a CFO must be able to lead a team effectively from home and be open to remote work arrangements.
06. Rapid problem-solving skills
During a high-growth phase, businesses encounter new hurdles at every turn. For instance, a startup that is currently experiencing negative ROI and a cash shortage will require the expertise of a CFO to manage cash flow and navigate a path to financial stability.
The CFO will need to collaborate with the COO to ensure that the cash crunch does not result in operational disruptions. In contrast, larger companies face a different set of obstacles to overcome.
For example, a mature company with excess cash (such as Apple, Alphabet, and Microsoft) will require a CFO’s insights on whether a buyback would be financially viable and how it would affect the company’s balance sheet.
CFOs must tackle a wide range of challenges arising from both internal and external factors. The ability to quickly solve problems and make sound decisions is crucial for maintaining the financial health of the business.
07. Cultural fit
For a CFO to succeed as an executive, it’s crucial that they fit in with the office environment. When employees share common values, it often results in a more successful team. Therefore, when searching for a CFO candidate, it’s helpful to look for someone who aligns with your company’s culture.
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