Isn’t a CFO Too Expensive for an Expansion Stage Company?
October 21, 2009
We hear this question often from CEOs, as their companies begin to mature from start-up to expansion stage.
Initially, the CEO’s concern is understandably around the cost of a senior resource, who isn’t necessarily viewed by a start-up team as directly accretive to either profitability or the company’s product offering.
Additionally, a startup CEO may have never worked in an environment where they had much interaction with a CFO. They may not understand exactly what distinguishes a CFO from a bookkeeper or contract accountant. In this case, the CEO wonders how in the heck they will have any idea whether the CFO is doing a good job, a bad job, or is focused on the right priorities. The CEO may see the value, but is not quite sure how to channel that value into the best focus areas.
In other cases, the CEO has been leveraging a part-time CFO on an as-needed basis to compile financial statements or prepare Board meeting materials. This relationship has often worked out well in the early days of the company, and the CEO doesn’t see much value in transitioning to a full-time CFO.
Unfortunately, far too many times, we see expansion stage companies decide to make the investment in a CFO reactively…after a problematic first audit, after a potential acquirer backed out of a deal due to an accounting irregularity or bad data, after a bank or investor has denied the company funding, after a cash crisis, or after a disastrous strategic decision has cost the company valuable resources. Often, these events that prompt the CEO to finally hire a CFO are more costly than the money the company thought it was saving by not hiring a CFO earlier.
Stay tuned for more from “out of the back office” next week, when I’ll talk more about how an expansion stage CFO can add specific value.