External Chief Financial Officer (CFO) – When is it worth hiring one?
Many medium and smaller companies do not employ a CFO – it is a large expense, and a significant part of their duties are performed by the CEO and the accounting department. However, there are situations in which the need to employ a CFO arises, although the company is not always aware of it. It is then worth using the help of an external CFO. What situations does this apply to?
Increasing the scale of operations
If the company is developing dynamically and increasing the scale of operations, all issues related to finances suddenly start to become complicated. This is a phenomenon that is growing – at first it is easy not to notice the problems, but they will grow in the background and sooner or later they will come to light with double the force. It is worth using the help of an external CFO who will look at finances from a broader perspective and arrange processes, plan changes and implement them.
In practice, the need for support from an external financial director appears when the company starts to record higher and higher revenues, and the number of contractors grows, or when the business suddenly expands (e.g. the company enters a new market or significantly expands the scale of its operations, e.g. increases production capacity). Then, you need to optimize operating costs and verify the profitability of the investment activities undertaken.
This is particularly importantwhen it comes to foreign investments, cooperation with international partners or entering new markets – this generates serious threats that must be anticipated. Moreover, foreign partners pay attention to the quality of management processes in their partners, and the presence of a competent CFO is a great added value for them.
Need for specialist financial knowledge
The lack of an experienced financial director makes it difficult to make decisions on complex financial matters, especially if the CEO has no experience in finance. Bad decisions most often concern tax optimization, liquidity management and audits and broadly understood reporting. An external CFO brings not only his skills, but also extensive knowledge of legal regulations, thanks to which the company gains an expert without having to engage him permanently. This is an effective way to implement ready-made solutions that have proven effective in other companies!
Financial risk management
Every company is exposed to financial risk – from changes in currency rates, through the volatility of financial markets, to problems with maintaining liquidity. An external CFO minimizes this risk. They monitor current finances, anticipate future threats, and prepare action plans in case of problems. Proper preparation provides a competitive advantage, because every company will sooner or later face a crisis – the question is whether it is prepared for it!
Cost optimization, process improvement
One of the main tasks of a CFO is cost optimization, and an external financial director introduces a fresh perspective that allows for an objective look at the structure of the company’s revenues and costs. Specific savings and effective solutions related to streamlining financial processes increase profitability, of course, if they are properly carried out.
Of course, first a comprehensive financial audit should be performed, without which it is virtually impossible to introduce any significant changes. The external CFO will conduct it, develop conclusions, and then propose specific solutions that are aimed at optimizing costs and streamlining broadly understood financial processes.
