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Why You Need to Recruit a CFO Who’s “Been There, Done That”

September 9, 2019
by: Lance Osborne
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If you’re an owner-manager who needs to recruit a CFO, it will most likely be for one of these three reasons:

  1. You already have a CFO and that person has just resigned.
  2. You have a CFO that you’re dissatisfied with and want to replace.
  3. You’re hiring your first ever CFO.

Btw, I want to clarify what I mean by Chief Financial Officer. This person could be a VP of Finance or a Director of Finance, depending on the size and complexity of your business.

If you already have a good CFO in place and that person is moving on to greener pastures, you’re probably in pretty good shape on the finance / accounting side of things. Your ERP is working the way it should, the finance staff are well trained and competent, the books get closed on time and you and your executive team can rely on a robust dashboard that enables you to see what’s going on in your business in real time and you can make good decisions based on that information.

If you’re really lucky, the outgoing incumbent has a trained successor already in place, ready to step up to the big chair. But if even you’re not that fortunate, hiring a replacement for your outgoing VP or Director of Finance will be a relatively straightforward proposition since you already know what a good CFO looks like.

The Usual Suspects

But for every search I get to replace a well-regarded, outgoing incumbent, I get five searches where the owner-manager hasn’t had the benefit of a competent CFO and subsequently is in a world of hurt when it comes to their finance function.

Inevitably, the issues that will need to be addressed by the CFO they recruit will revolve around

  1. Systems. Bringing in a new ERP, making better use of the current ERP or resuscitating a stalled implementation or conversion.
  2. Basic accounting. Getting the books closed in a reasonable timeframe, catching up on collections and receivables, improving cash management, etc.
  3. People. Getting the right people in key roles, training or replacing existing accounting staff.
  4. Process improvement. Ensuring people throughout the organization are doing the right things for the right reasons with clear lines of communication and minimum duplication.
  5. Dashboards. Acquiring real-time KPIs around costing, gross and net profit, operational cash flow, revenue growth, inventory turnover, etc.
  6. Planning. Putting together a planning process that relies on good data and information, modelling scenarios to better analyse the possible outcomes to feed the financial and strategic plan.

Think of a large semi rolling down a major highway at 100 km/h. Now imagine that the semi needs a major tune-up, but it can’t pull into a mechanic’s bay for the next two days because it has essential deliveries to make.

That’s your business if you’re the owner-manager who’s behind the eight-ball in your finance function and desperately needs a top-notch VP Finance or Director of Finance to come in and set things right.

You shouldn’t just recruit someone who happens to have already been a CFO. You need someone who’s had experience addressing and redressing the finance issues that are making you crazy (and putting the brakes on your company’s success).

You need someone who’s had experience tuning up the metaphorical semi as it thunders down the highway of commerce.

As I’ve noted in previous articles, not all CFOs are created equal. Some are good caretakers but not necessarily change agents. Some are very technically oriented and some are very operationally oriented. Some are great change agents but are maybe not so great at minding the store once all the heavy lifting’s been done and things are running smoothly. So just because a person has been successful as a CFO for some other companies, it doesn’t mean they’ll be a successful CFO in your company.

Been There, Done That

Since you have specific issues to be addressed, systems and processes that need to be overhauled, and a finance function that needs to be reengineered from top to bottom, you need to recruit someone who has a closet full of T-shirts that say “Been there, done that.”

And preferably, the CFO you recruit has done it in an environment that’s comparable to your own. If you make and sell widgets, you want to hire someone who’s worked for a company that has issues analogous to the ones you commonly come across in the widget manufacturing industry.

When the Going Gets Tough, the Tough Get Going

And being an owner-managed business, you probably don’t have a lot of layers of management, so whoever you hire needs to be comfortable getting their hands dirty. In situations like the one I’ve described above, your new CFO will need to be in the weeds for months and months with limited resources to draw upon. So they’d better be able to demonstrate that they’ve had success in that kind of environment and won’t get frustrated when the going gets tough (as it inevitably will).

Tying Bonus to Goals

Once you’ve engaged a head hunter who understands the issues involved (me, of course) and are at the point where you’re ready to make an offer, it’s time to go back to your initial search criteria and give some thought to how you’re going to measure success and how you plan to reward your new CFO for achieving your goals.

A bonus is just that: a bonus. It’s not another way of saying salary, it shouldn’t be subjective, and it isn’t handed out to because you like your employee or want to keep them happy.

In many owner-managed businesses the overall executive bonus pool is based on company profitability. (If you’re not making money, why should they?) Your VP of Sales’s bonus is based on some combination of revenue and profitability goals, and likewise, your new VP of Finance’s bonus should be directly tied to what they’ve achieved that year.

Suppose the bonus component of your new VP Finance’s compensation is a maximum of 25% of salary, and you specifically want them to

  1. Implement a new ERP system.
  2. Get the books closed within five working days every month.
  3. Design and implement a new management dashboard.
  4. Overhaul and manage the budgeting / planning cycle.
  5. Oversee construction of a new facility.

Given that these things take time and it’s entirely possible that some of these goals will take more than a year, negotiate with your new CFO on what a fair indicator of success would be for each line item and then assign one-fifth of their bonus potential to each of them.

Make sure your criteria are realistic and fair, and that your new CFO agrees to them. You’ll have an opportunity to review progress on these goals on a monthly or quarterly basis and you’ll know if they need to be adjusted.

But if you have the right person in place, you’ll see real progress on all fronts and you’ll be a much happier camper a year from now.

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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