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How to Hire the Right CFO for Your Start-up Company

April 8, 2019
by: Lance Osborne
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If you are fortunate enough to own a company with revenues of $250 million, you may have issues with your CFO but you’re not struggling with the question of whether or not you should hire a CFO.

If you happen to own a company with revenues of $2.5 million, you’re not struggling with the decision on whether to hire a CFO, either. Your sister-in-law Shirley, who conveniently happens to be an accountant, comes in for an hour or two every Friday and does your books for you.

But let’s say you started a company five years ago that designs and manufactures the proverbial better mousetrap. And let’s also say that the old proverb proved right and the world is indeed beating a path to your door, clamouring to buy your better mousetraps. All of a sudden, your start-up now has revenues of $25 million and you anticipate that sales could reach $50 million or more in the next five years.

Now the question of whether or not you should hire a CFO is no longer academic – you definitely need a pro to head up your finance function. The question is, what does that pro look like?

If you’re like almost every other owner-manager I’ve met, you don’t come from the world of finance or accounting. You either came up through sales, operations, engineering or you were born into the business (thanks, Grandpa!). So you may peer at the world of accounting executives as through a glass darkly; what does a Controller do? How is that different from a VP Finance? Is a CFO the same as a VP Finance?

Of course, every company is different and will have their own particular spin on what kind of CFO will be best for their business but generally speaking, here are the three issues you should be taking into consideration when you’re thinking of hiring a CFO for your start-up company.

How do you know you need a CFO in the first place?

If any of these statements apply to you, you probably need a CFO. If more than one of these statements applies to you, you definitely need a CFO:

  • I spend more than 25% of my time on accounting and finance matters.
  • I don’t really know what’s going on in every aspect of my business anymore. I’m afraid we’re dropping balls and don’t know it.
  • I think we can grow the business by 50% plus over the next few years but I don’t really have a comprehensive plan on how to achieve that growth.
  • I want to exit the business in the next five to ten years.

Should you hire a Controller or a VP of Finance?

When I talk to owner-managers about what sort of finance professional they should hire, this is inevitably the question we spend the most time on. You basically have three choices: Controller, Director of Finance or VP of Finance – any of whom can act as your CFO.

It’s useful to visualize your future hire as being on a continuum between a Controller on one end and a VP Finance on the other.

The Controller is basically looking backwards. They are masters of the financial information that tells you what happened last month and last year. In navigational terms, they give you a fix on where you are today and the path that brought you here.

A true VP Finance is basically forward looking. In navigational terms they can tell you where you’re headed and how to avoid the rocks and shoals that you could inadvertently run into in the future.

If you’re the person who owns a $250 million company, you don’t have to choose between the two – you’ll have a Controller and a VP Finance (and a bunch of other finance professionals as well, btw).

But since you’re the person who owns a $25 million company, your finance function isn’t complex enough (nor do you have the budget) to justify having two separate positions. So for most owner-managed start-ups about to take it to the next level, the best choice is someone who can record the past and give you insights and guidance into the future. And that person usually goes by the title of Director of Finance.

A question of runway.

I previously advised you to think of your future CFO as being on a continuum between a Controller and a VP of Finance. Now think of someone’s accounting career as being a ladder with Controller at the bottom rung and VP Finance at the top. It can take someone twenty years to climb that ladder from Controller to VP Finance, or it can take five years. Or the Controller may stay a Controller their entire career.

How fast someone is progressing up their career ladder has implications for you as you consider who you should hire to head up your finance function. Remember, one of the reasons you’re hiring this Director of Finance is because you think your $25 million company is going to be a $50 million – or even a $75 million – company in the next five years.

So you’re not actually hiring for who you are today. You’re hiring for who you’re going to be five years from now.

The trick for you is to assess if the person you’re hiring to head up finance for your $25 million company will be able to keep up with and help facilitate your growth into a $75 million company. If the person you’re considering has been in the same Controller job in a $30 million company for the past ten years, all other things being equal, I’d guess that they won’t be the person to help get you to $75 million in the next five years. If however, the person you’re interviewing has progressed from junior accountant up through the ranks to Controller in a reasonable timeframe and tells you that after three years in the Controller chair that they’re ready for new challenges, they may be just what you’re looking for.

Also, keep in mind that as your company grows, the complexity and sophistication of the finance function will grow in lock-step with your business. So when you’re a $75 million in revenue business, your Director of Finance is probably going to be too busy with strategic initiatives and activities that are helping you grow the business to really keep up with the controllership side of the job. At which point it’s a natural segue to promote your Director of Finance to VP Finance and hire a Controller to look after the day-to-day accounting.

If you think you may be in the market for top financial talent in the next few months, call me direct or email me, for a no obligation consultation.

(416) 567-7782 lance@osbornefinancialsearch.com

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