Growing construction companies are faced with financial obligations every day, and managing them requires a two-pronged approach: Making the right decisions will contribute to the success of a company, while having the right people on board will ensure that those decisions are being made by qualified and experienced staff members. As your company grows, certain internal positions may need to be added and/or replaced with more qualified people. A difficult task for owners of growing business is to identify when management level staff are not growing with the Company. A critical component of this is the financial department. When the day-to-day maintenance of financial matters fails to assist your company in truly meeting its expansion goals, that’s when it’s time to ask, “Is it time to hire a CFO?” If your internal financial systems are not providing timely and accurate financial information, or if you are relying on schedules prepared outside the accounting system to manage your business, then its time to evaluate your internal systems and staff. Growing companies face the challenge of identifying when it is time to a CFO level to the financial department. Understanding the key differences and relative merits between a Controller and CFO may help you make your decision.
Generally speaking, a Controller plays more of a supporting role than a CFO in an organization. They focus primarily on details, handling day-to-day inquiries and internal affairs, managing accounting records, and dealing with budgeting and organization. In short, they “control” the company’s finances, ensuring their efficient delivery, processing, and flow. On the contrary, a CFO handles the “big picture” and should have knowledge of financial reporting and accounting. CFOs have a more strategic role in the organization and are responsible for the planning of financial goals and processes and analysis of internal information, rather than their implementation. Your company’s CFO should understand business funding and capital structures and be able to identify tax and market risks.
Despite your growing company, you might not think you need a CFO, especially if you are the decision maker or you have a Controller handling most of your organization’s day-to-day maintenance. Another reason you might be neglecting hiring a CFO is that you can’t justify the investment. However, the absence of a CFO in a growing company can result in inaccurate or incomplete financial reporting, mismanagement, missed tax savings opportunities, general inefficiency, and, in some cases, serious unrecognized financial problems. At best, the lack of a CFO could be holding you back from effectively utilizing your resources and realizing your company’s full financial potential.
So, when is it time to separate the roles of Controller and CFO? A good time to invest in a CFO is when your company is rapidly expanding, the overall daily activities are becoming overwhelming for your Controller, and you require a closer watch on certain aspects of your business or more experienced financial planning for further ambitious expansionary projects.
Grassi and Co. has helped numerous clients in this kind of situation, such as a local two-owner contractor worth roughly $80 million. We had been working with this client for a number of years, and, with our guidance, they were able to realize rapid growth, expanding from $30 million to $80 million in a three-year period. The client’s Controller, while effective at managing the company’s finances, was becoming increasingly overwhelmed, and, more importantly, was much better suited for a more administrative position than a strategic one. In addition, the owners were spending more and more time in the office attending to administrative matters and less time in the field. The key decision point was when we identified the items on their financial wish list that was not being completed, and the amount of administrative tasks that could be transferred from the owners to a CFO.
Clearly, that added up to a full time position. If the owners spend most of their time managing the projects and find an additional 1% in gross profit, that would more than pay for a CFO. We counseled the client to hire a CFO to help manage and guide their continued growth, and we put a significant amount of firm resources at their disposal to ensure that they found the right match. With the help of our Human Resources and Recruiting department, our national network of contacts, and our Partner-in-Charge of Consulting (who is a former CFO), we were able to find a team member that suited their needs and was able to help them organize and maintain their growth. Grassi & Co.’s quarterly management meetings, which we extend to all clients, allowed us to guide the client every step of the way.
As your company continues to expand and succeed, consider whether having a dedicated team member for financial planning and management would be a smart decision for your organization. Contact your financial advisor for more information on whether a CFO is right for your company.