The CFO role

As companies scale up and grow, there are several questions and concerns that arise. One common one is at what level does a business need a dedicated chief financial officer?

That was a topic of conversation on Day 1 of the Bruce Wilson & Company 2023 Thought Leaders Retreat held in Miami Beach Florida recently.

Tim Spihlman, managing director of Lewis & Clark Holdings, gave attendees actionable advice on when a CFO is needed and what kind of person should fill that role.

Spihlman started by saying there is no set standard for when a company should hire a CFO.

“We have companies we work with today under $3 million in revenue who have a true CFO,” he says. “And a company that’s over $40 million with no full-time CFO or controller.”

In fact, Spihlman shared an interesting fact about how uncommon CFOs even are in the business world. Out of the approximately 18 million businesses in the U.S., there are 132,000 CFOs and 665,000 CPAs (certified public accountants).

“That’s actually less than 1% of businesses today,” Spihlman says.

Spihlman says before deciding to hire a CFO any company should attempt to answer a few questions. They are:

• How complex is the company? (Are there multiple locations, multiple legal entities, multiple lines of business)
• Do you have debt?
• What are the plans of the business? (Are you looking to grow and make acquisitions, or any significant changes coming in future)
• How much into the numbers are you?
• Are you willing and able to “let go?”
• How much do you want the company to be data driven versus instinctual?

  Spihlman adds that a CFO is a true partner to any business leader, therefore a company must be willing to use the data provided from the CFO to lead the business even if that means making significant changes.

  He says sometimes a true CFO isn’t even needed. Spihlman broke down financial roles in a company into two categories — the accounting team and the finance squad. The accounting team will include bookkeepers, accountants and controllers, while the finance squad would be an analyst, treasurer and dedicated tax specialists.

  “In a smaller organization, you most likely won’t have finance squad roles,” Spihlman says. “The accounting team is very good at transactions. But sometimes they struggle to tell you the story behind the financials. Your analyst will look at the numbers and tell you the story.”

  Spihlman defines key finance roles with his Pyramid of Power, which details an ideal workflow of finances within a company. It typically consists of six levels.

• Base level — Spihlman says the base level to the pyramid is simply an accounting system. This can be QuickBooks or any similar software.
• Level 2 — Transaction activity. Spihlman says examples of this level include bookkeepers and all those who handle reoccurring financial tasks like payroll, accounts payable and other routine processes. He says it’s critical that this level is getting its work done quickly. “If they don’t do this in a timely manner the next level is pointless,” Spihlman says.
• Level 3 — Reporting. This is the level of the controller and those in charge of the budget and bank accounts. They are the ones providing the information and data to the higher levels.
• Level 4 — Planning & analysis. Spihlman says this is the level for all your “data junkies” and analysts. However, he notes that this level is only as good as the foundation beneath it. “If they don’t get good information, then it’s garbage in and garbage out,” he says.
• Level 5 — Special projects. Spihlman says this is the person who is in charge of implementing new systems and processes, tracking debt, etc.
• Level 6 — CFO. The top level is the CFO and Spihlman says if there is one that person needs to be an essential part of the leadership team. “A true CFO is your thought partner,” he says. “Because it’s lonely at the top.”

Spihlman also warned against companies hiring a CFO hastily because they are unhappy with their numbers and financial reporting.

“If you’re unhappy with the finance in your organization, don’t default to a CFO,” he says. “Ask yourself where the breakdown is occurring.”