Stone Soup - The Entrepreneur's version
From the time I began to read, as a child, I loved the old folk story, “Stone Soup”. I was impressed by the traveler's success in the story. His "success" consists of surviving, being creative, persuading those around him, acquiring the best ingredients needed for making the soup, and finally making a delicious and nourishing pot of soup.
Every entrepreneur should have the traveler’s abilities. At the inception of a business, the entrepreneur usually takes up all roles and responsibilities for his business. He cleans the old pot he found in the ditch, puts in the clean stone (his vision), and begins to boil the water (starts the process). He continues with leading further actions of fundraising, marketing, sales, designing, monitor the expenses, and determining future goals and objectives. The entrepreneur takes care of all that needs to be done.
Entrepreneurs are indeed great at starting projects alone, but sometimes when they hit a bump on the road, they might need a helping hand. At some point along his business journey (making that soup that no one has yet tasted), he’ll need the support of other professionals. He might need a recommendation for design, or some advice on new legal matter, etc. He will ask for help and small favors from friends and colleagues, which many of them would be delighted to do free of charge.
While the entrepreneur prides himself on running things alone and outsourcing only what is necessary, he will soon understand that he will need more people on board to build his talent team. He gets his ego out of the way and starts interviewing candidates for hire. He will need to hire and outsource new employees, consultants, and subcontractors for the services he received free of charge till now. Due to financial limitations and since the entrepreneur feels defensive over tasks he prefers to do alone; he will ask for help only in areas where it’s a must.
One of those key ingredients to make the stone soup is an experience CFO/financial team. A start-up operates out of budgetary control and reduction, and therefore will not often seek to onboard a CFO (whether outsource/ inhouse, part-time or full-time). For many startups, hiring a CFO becomes a priority only when this demand is requested by a third-party. A third-party may be investors, auditors or lawyers for example. The requirement may come on one hand, when the company may lack awareness of the industry and economic situation, regulatory changes, international needs, complex tax that could drastically affect their business. And on the other hand, when the existing team is unable to assist with compiling financial reports required by bankers, suppliers, shareholders, tax authorities, investors, and partners. Sometimes, the demand may come too late or as a result of a crisis. Recent surveys found that 33% of closed businesses were affected by a financial reason: inability to fund business activity, lack of control over expenditure, poor collection, combination of those things or other factors that result from lack of control. Many entrepreneurs go with their gut in making financial decisions.
CFOs perform several essential tasks. While the accountant and bookkeeper, record all transactions, handle the past activities and perhaps even examine the data, the CFO is also in charge of the financial future of a company while maintaining the past and can provide actionable information.
By adding a CFO, the company will receive results-oriented financial services and will improve the efficiency of its finance and operation. CFOs tasks can include, controlling and supervising the accounting work and performing an analysis of the company's reports while identifying challenges and opportunities. The job includes responsibilities over cash-flow management, collection, budget, work processes, tax aspects, payroll, and system integration. The CFO will advise on employment matters, will negotiate with suppliers, tenders or new projects. CFOs provide analysis into that data and offer key insights and entry into new markets. CFOs are an invaluable ally to the CEO and will often occupy a seat on the board, bridging the gap between day-to-day operations and the company’s strategic direction. The CFO acts as a right hand and sounding board for the CEO to grow the business.
Adding to the general lack of awareness of the company's need for a CFO, entrepreneurs strive not to spend their money. What many entrepreneurs don't realize and should ask first themselves, is whether they're already spending that money in lost profits and misspending in the first place? The owners of the company's financial interests should ask themselves he or she wouldn't they rather hire an experienced right-hand person to solve issues so they can continue to dedicate their time in their own field of activity? They will need to check whether the issues they are dealing with are time consuming in comparison to other areas, whether the management is not getting monthly financial statements or KPIs or if the company is facing audits or penalties from the authorities, are suppliers complaining or is the company having collections problems? The company needs to address these issues right away, but many businesses don't really stop to ask these questions beforehand. There are several events in a business's life cycle that can be defined as criteria for owners to use as a guideline for when is the right stage to hire a CFO. These events depend on the changes of a company's life cycle, for example, growth, fundraising, and the commencement of sales or a significant increase in sales.
A CFO is especially valuable in contributing to the company's growth. For companies experiencing growth, it’s a common trigger for hiring a CFO since there are new financial implications and needs to take into consideration, such as: does the company have a large number of employees or is facing rapid headcount growth? what are the budget implications? what is the expected growth speed? expected growth overheads? are there significant compliance or tax issues, international banking needs, is there a need to mitigate operational risks, improve controls, reporting, collection, and monitoring? . A positive answer to the following questions, would perhaps suggest that it is time to start searching for your CFO
CFOs can certainly help the company raise money; after all, that is one of their key functions (that not many entrepreneurs are aware of). The CFO will address all the questions relating to an investment, such as: "What are the cash flow needs? what is the company's business plan?, what might investors demand regarding the company's financial role? how much money can they/do they want raise? what is the level of dilution that the entrepreneurs are willing to live with?.
When your business starts generating income, your business is suddenly up and running with many spinning plates and requires handling several financial issues simultaneously. Bringing a CFO in will assist you with these complex issues, and not just manage your expenses; this will allow the company to do critical forward planning and strategy concerning its income and revenues. The business needs to examine sales goals, accurate pricing, desired growth rate and expected profitability, as well as review the different models products, types of clients and locations available. In addition to such, the CFO manages the collections, contracts, billing system, taxation, VAT, international taxation, market and competitors and more. Growing income, from both a management and control point of view, requires more professional knowledge and time from when you have a low number of transactions. Implementing procedures, systems, and business planning at an early stage will enable the business to grow and meet its objectives more efficiently.
The traveler knows he must add vegetables and spices to the soup, along with other many other good ingredients in order to make it the best soup in the world. At that point, the business should realize that it needs a professional to take care of the financials. The person who truly understands the economics of a business, what makes it work, is a CFO. After establishing the need for a CFO, it is important to determine the type of CFO needed or what level of skills are required, and of course, the hiring price. A business that will recruit a full-time CFO, when such scope of work is not needed, will sometimes burden him with non-financial operations, or alternatively prefer to compromise on a beginner and inexperienced financial manager whose cost is relatively low. It is recommended to examine the various alternatives in order to provide an efficient and professional solution.
If you are still debating whether you need a CFO or want to consult on the scope of the tasks - you are welcome to contact us, Guberman Group.
Guberman Group is a full-service multidisciplinary provider of accounting and CFO services in Israel. For over two decades, the group provides meticulous, efficient, and reliable accounting solutions, thanks to the uncompromising professionalism of its employees and its emphasis on quality.