When to Hire a Fractional (Part-Time) CFO – Part 3

Part Three of Three Parts: When to Hire a Fractional (Part-Time) CFO

In the third and final part of a three-part series on hiring a fractional (part-time) CFO, Florida CFO Group partners Betsy BennettMark Brown, and Jim Dietz discuss how to know you need a part-time CFO and the important considerations in hiring one.

What are the indicators for a business owner that a part-time CFO is needed?
Mark: It can be sudden – such as when an entrepreneur is not able to get the financing they wanted, or the financer is threatening to pull their credit. Or, it can be more gradual. For example, when the business is small, the entrepreneur has his or her finger on the pulse of everything that's going on. They don't need financial reporting to run the business. But with growth, that connection becomes weaker and weaker to where they start to feel like they're flying blind. So, it's about to get scarier and scarier for some of the decisions they're making and allocating resources.

Jim: Entrepreneurs start out by managing simply by walking around and seeing what each person is doing, having a direct and personal relationship with each employee. With the growing complexity of a business there may be too much for the entrepreneur to manage. That can lead to the CEO being distracted by the worries about everything they have to do and how they have no one to help them. In my experience, that's when clients come to me, because they need somebody to help them as things become overwhelming. It goes beyond the relatively informal and direct personal means of management they've relied on to get to that point.

Betsy: Those are good points. It can be financing, customer profitability, needing an exit strategy – any of a number of crisis or pain points. I worked with a service company and they had eight primary customers in their service division, but they didn't know what, if any, profitability these major customers contributed to their bottom line.

This a situation where the top internal financial person was called the CFO and was in reality an accounting supervisor. So, they didn't have the skill set to do that type of analysis. We came in and quickly recast the way their books were being compiled so they supported a profitability reporting structure. So, the pain point could be any of the specialties of a CFO that intersects with when the entrepreneur recognizes that they're flying blind and knows there's a better way.

Mark: What I've found is there's usually a half a dozen pain points, but there's one that becomes the tipping point when the entrepreneur says to themselves, "I have to do something about this." So, when I sit down with a prospect, very seldom do I walk away until I understand what needs to get done. Then I can show them that their situation is not unique. Almost every other entrepreneur has gone through a similar situation. It's just a matter of knowing what to do and going and doing it. It's not magic, per se. It's not reinventing the wheel. It's just, this is what the problem is, this is how we go solve it.

Jim: That's exactly right. I've been in situations where before I can even thank them for having me in, the prospect presents so many issues that it's almost like drinking from a firehouse. We obviously need to prioritize, but sometimes they've held back so long and the pain points are so severe that when they find someone that can help them, they just unburden.

What are the most important considerations for an entrepreneur or emerging company in hiring a part-time CFO?
Betsy: The skill set. You have to make sure the person you're hiring is truly a part-time CFO. Not someone who's between jobs and trying to fill in. Or not truly a CFO at all.

Then the cultural fit; that they think they can work with the part-time CFO. And you discover that just like you do in a regular hiring interview. By getting to know the person and making sure that it looks like you have the right values and the same vision. I've walked into prospects where I knew we would not be a good fit long-term because our views on how to build a company weren't well aligned.

Jim: The question from our perspective is how do we select a client that's a good fit. Our client -- the owner, the entrepreneur, the CEO -- has to be open and willing to share details. Interviews where the prospective client really didn't want to share a whole lot of information are a sign of a poor fit.

There must be a frankness, an openness, a transparency with the entrepreneur for us to really add value. That's the key. We are by nature transparent, open, and frank. Mark said it very well, we're not that worried about job security. In fact, we work to set things up so that there's not an ongoing need. But both parties have to be very frank in this process. And so, the owner, before engaging in the process, should really think about if they're open to bringing in someone to truly be their partner in running the business. That's important to making the whole relationship work and to me is the most important determinant to whether the fit is right.

Mark: I typically do a two- to four-hour initial engagement at no charge, where I come into the company and meet with the people. What I'm looking for is a very tangible value-add that I can bring to the organization that far outweighs my fee. And before I take an engagement I want to see the prospective client make that same judgment. Then we can agree upon what needs to be done and how we might solve that problem.

Is it the Entrepreneur's Goal to Improve Process and Procedures or to Change Culture?
Betsy: One of the key elements of a good fit is that the client needs to be motivated to change. And I think all of us in the CFO group -- we're not maintenance CFOs. We're all highly focused on change and continuous improvement methodology to improve processes and productivity.

Mark: Very seldom can we change the culture because that's usually set by the entrepreneur and changing culture is tough. I can change the approach with an accounting department and the line business that the CEO or entrepreneur wants. But I don't remember ever actually changing the culture. The owner needs a new mindset in order to do that.

Betsy: I've had a case where the entrepreneur wasn't seeing was how he was impacting the culture; both positively and negatively. And I think my role as a part-time CFO without the filter of a full-time person enabled me to give him visibility into what he was doing that was permeating the organization and impacting him financially.

Mark: One of the roles that I've been asked to fill is when the senior people to use me as the mouth piece for things that they want the owner or the CEO to know. They're worried about job security, but I'm not. I can tell the CEO what they need to know without exposing the source and that they wouldn't have otherwise known.

Jim: That's an excellent point. We're not so worried and shrinking from the ramifications of what we might say. We have to be a voice of clarity; we can be very straightforward and carry those messages that others are afraid to.

Betsy: I find that entrepreneurs tend to value that very much. Almost as much, and maybe even more so, in some situations than our finance expertise. We're the sounding board for the CEO, as well as for the other people in the organization, when they want to filter out things that they're afraid to say directly. I guess you'd say we act as a catalyst, providing that safe place, that haven.

Mark: When a business first starts out, it can be extremely aggressive because it really has nothing to lose. As a company grows, it has more and more to lose if things go south. One of the things you'll see as a company grows, CEOs and entrepreneurs get more conservative in what they're doing because they have to play the role of the CFO -- the cautious person looking at all the ramifications of their actions.

So, that's a balancing act. As a part-time CFO, one of the roles I perform is to keep the CEO from having to play both roles, which allows them to be more aggressive and grow the business. That's a key part of this part-time role, to have somebody there that enables them to go run their business very aggressively.

Betsy: You can see the relief when the entrepreneur is freed up to be themselves.

Final thoughts on hiring a part-time CFO:
Mark: As entrepreneurs, if you're not sleeping well at night, you don't necessarily have to lose sleep. You can do something about it.

Betsy: I would tell an entrepreneur once they understand the option of a part-time CFO, to make sure that they truly have someone fulfilling the CFO role on a part-time basis and not someone that's between jobs and just looking for career filler. Because as Mark said, we come into the job and we react much more quickly than the typical full-time CFO. Just make sure that you understand what the part-time CFO offering does and make sure you get the right person to fulfill it.

Jim: Part-time or fractional CFOs must be strategically minded. They can't be controllers that have been promoted to chief financial officers just because of their long tenure. We are not that at all. We are strategically minded. We're strategically focused. We can be of great help and we can bring the insights from working with start-ups and very large companies.

Because we're part-time, we're affordable and we're available for the specific, prioritized needs of the company. Entrepreneurs are not excluded from the expertise they need by the expense of hiring a full-time financial executive. We bring the expertise of companies that have overcome similar challenges to their company.

About the Florida CFO Group

Founded in 2010 the Florida CFO Group provides CFO services and support in raising growth capital, mergers and acquisitions, recapitalization, or structuring to meet ongoing opportunities to Florida's growth companies. The Florida CFO Group's partners have been providing CFO services on a fractional share (part-time) or interim basis over the past decade and specialize in cost-effective financial reporting, budgeting, forecasting, controls and financial management. Each embodies a wealth of financial skills as well as experience in servicing clients in a consultative CFO manner across markets including agriculture, construction and development, government contracting, healthcare, manufacturing, not-for-profit, private equity, real estate, technology, and wholesale and distribution. 

Share this post