We propose the following solution: stop worrying about whether or not you need “a CFO” and start examining the individual elements of the CFO role and how well they are executed in your business today.

The way to specifically determine how well executed each function is in your case is of course highly dependent on your specific situation, what capabilities exist within your business and teams, the personalities involved, the complexities of your business and your market, etc. However, we propose the following set of questions as a starting point.

For the “bookkeeping, accounting and external (tax) reporting” role:
 

• Is there a person in the executive leadership team that (a) looks at, (b) fully understands / verifies and (c) reports the “So-Whats” of monthly financial statements to the rest of the team?
   

• Are monthly financial statements prepared in a visually appealing manner (so that the leadership team digests them) and available within 10 days of the end of a month? Are there quarterly reports that somebody looks at because they actually provide interesting and relevant information (in an appealing way)? Annual reports?
   

• Do you feel confident that the tax filings and other external reports are 100% accurate and reliable and do you understand the implications for the future (e.g., how much cash you need to pay tax liabilities)?
   

For the “risk management” role:
 

• Do you know your operational cash flow at all times and do you have historical data to compare it to? Do you have a cash flow forecast for at least 24 months?
   

• If you are not yet profitable, do you know your cash burn rate and days of cash on hand and run rate? Do you know the main categories and individual drivers (e.g., when customers pay, when you pay, how much your biggest customers actually pay, who you pay the most etc.)?
   

• Do you have a view on which risks exist that may affect your cash flow and liquidity going forward? By how much might they affect it?
   

• Are there critical other risks to your business (e.g., regulatory, data security and privacy, etc.) and if yes, do you feel confident they are monitored and that mitigation strategies are in place?

For the “shareholder, investor & Board communication” role:
 

• When it is time to prepare communication for specific situations such as Board meetings, investor reporting, pitches, etc., does somebody in the executive team have access to a reliable and easy to use data source? 
   

• Is there a common language regarding key financial and other performance metrics and do you know how to use them (e.g., “recurring revenue” vs. “GAAP-revenue”) and do you understand them “really”?
   

• Do you feel fully prepared and ready to answer any question the Board members may throw at you (or do you at least have somebody you can “call in” to answer these questions)?

For the “financial and performance controlling with deep understanding of underlying data” role:
 

• Do you have an integrated financial model that provides more than just cash flow forecasts, specifically covering profitability of your company as a whole?
   

• Are you able to compare the performance of individual cost centers, business units, products etc.?
   

• If you want to make a decision about hiring another manager or even executive, increasing the Engineering team size, increasing the marketing budget or cutting costs, do you have a forward looking perspective on what that REALLY means for your cash flows in the next 12-24 months? Do you always feel confident that going ahead with that decision is the right choice and that you considered all relevant arguments (and all available data) sufficiently?
   

• Do you have a view on pricing of your products and whether or not your future vision of your company’s success is achievable and how (i.e., what you need to achieve to get there – for example how many customers you need to acquire and at what maximum customer acquisition cost)?

For the “executive support & commitment to rational decision-making” role:
 

• When executive and leadership decisions are made, is there a set of commonly understood and valued “hard facts” (however small) that is provided to support the decision-making process (e.g., KPIs)?
   

• Is somebody on the executive team willing to ask the tough questions and challenge the assumptions of everybody, including yours?
   

• Is it really a rational decision you are making, or do you “just know” or “believe strongly” that things will work out, without checking what that actually means for your business and the underlying assumptions going forward? Do you consider scenarios and what-if / if-then questions?
   

• Do you compare past decisions and expected performance to real performance and question whether adjustments to the course taken should be made?

Once you determine how comfortable you are with the current level of these role elements, determine where improvement is needed, what can be done about it, and who in the current organization can take on the accountability, together with the help of external resources (consultants, tools, networks, …). Or maybe there are junior positions that could be filled with experts, such as a financial analyst who can create and maintain an effective integrated financial model and discuss the implications with the COO (or the CEO – as long as the executive is comfortable with numbers and “speaks Finance” – and has time to actually focus on it besides his other roles).

In almost all instances, however, it is our belief that having an external counterpart that has the experience across all elements of the CFO role can lead to a better understanding of what can be enhanced and how – this is where the use of external / fractional CFOs comes into play.

These services provide a solution for the main problems described above: first and foremost, they are readily available from various service providers and can be implemented quickly. They are almost always “pay for what you need” type of services, ensuring that you do not hire a full-time employee for something that requires only a few hours every week in a smaller, low complexity business and situation. Also, services contracts can be cancelled quickly and without repercussions, and no potential shareholder is added to the cap table. Further, a good “CFO as a service” provider offers various experiences for the price of one, leveraging internal and external networks – ideally even including different professions such as finance, accounting, legal and operational backgrounds – to provide a multitude of perspectives without requiring you to pay for multiple people.

At the same time, employing such services not only to do what is needed to do, but to coach and mentor company executives and junior employees as well and help build the required capabilities going forward in-house, increases the value add. Since it is a service, you can decrease the amount you add-on and buy from it as your own capabilities grow – while still keeping an external expert, coach and mentor available for when you want and need it.

Lastly, the “external” CFO has no political bias, no own team in your company to grow nor responsibilities to expand, no own agenda to push through in your business, making it an almost natural fit for the rational decision-support role and performance enhancing challenging nature of engaging with other leaders in your business.

In sum, relying on CFO service providers is very often the optimal approach for companies struggling to find “the right CFO” at the right time and for the right price, in order to avoid the pitfalls of insufficient Financial Management expertise and planning, and to reap the benefit of having a smoothly run internal Financial Management function and increased rational executive decision-making.

But regardless, the critical task remains first and foremost to ensure the various functions are well-executed in your company, by whatever means make the most sense in your individual situation.