When does a company need a CFO?

When is accounting no longer enough?

When does a company need a CFO? Usually when accounting alone is no longer enough and management decisions require a stronger financial perspective. The main reasons for bringing in a CFO are raising investment, the need for accurate cash flow forecasts and the wish to increase business profitability. Financial management helps turn numbers into a clear action plan, ensuring the company's sustainable growth and stability.

It's often thought that only a large company needs a CFO. In reality, the need doesn't depend only on the size of the company, but on its stage of development and the decisions that need to be made.

Accounting helps keep past data in order, submit reports and meet obligations. Financial management, however, helps you go a step further – understanding what the numbers actually mean, where the money is going and which decisions affect the company's results the most.

A CFO helps a manager answer very practical questions:

• Is the company's growth really profitable?
• How much additional funding is actually needed?
• Are costs under control?
• Do today's decisions support the company's long-term development?

When is the right time to bring in financial management?

A CFO is usually brought in when the company faces a bigger change, growth, an investment or the need to get better control over money. Professional financial management ensures that all business decisions are backed by data.

Financial management and raising investment for a start-up

One of the most common reasons for bringing in a CFO is raising funds. If a company wants to take out a loan, bring in an investor or apply for a grant, well-kept reports alone aren't enough. It needs clear financial forecasts, a well-thought-out funding requirement and an understandable plan.

An investor or bank wants to see how much money the company needs, what it will be used for, how it will help the company grow and when a return can be expected.

A practical example: We helped a start-up, that was preparing for negotiations with investors. The company had a working service and its first clients, but lacked a clear financial view of how large its funding requirement really was and which goals it would be used to achieve. We worked through the company's revenue model, fixed costs and forecast sales growth, and prepared financial forecasts and a cash flow view. As a result, the start-up went into fundraising much better prepared.

When budgets need to be set

A good budget isn't just a spreadsheet. It's a management tool that helps plan activities, set goals and track whether the company is moving in the desired direction. Financial management helps prepare a realistic budget based on real data, not assumptions. This gives a manager a firmer basis for decisions and helps avoid managing by “gut feeling”.

When costs are rising and profitability is falling

In smaller companies it often happens that there are sales, but at the end of the month there's still a feeling that no money is left. In that case, the costs need to be reviewed in detail to assess which of them support the company's goals and which don't.

A practical example: We helped a micro company whose owner felt under constant financial pressure. We mapped the company's fixed costs, variable costs and irregular expenses. The analysis revealed several costs that had remained out of habit but created no value. As a result, the company was able to reduce costs and set up a system for tracking them. The manager gained a clear overview of where the money goes.

When the manager lacks a clear financial overview

Sometimes decisions are made largely on feeling. Financial management helps establish which indicators to track regularly and how to make decisions systematically. This makes management calmer and more conscious.

When bigger decisions lie ahead

Hiring a new employee (including accurate payroll), launching a new service or investing in equipment all affect the company's financial position. A CFO helps assess whether the company can afford it and what the cash flow risks are.

Why is a CFO needed?

A CFO's value lies in seeing the whole picture and making decisions with certainty. A CFO is often brought in precisely when a company wants to grow smarter, not just faster.

In summary: A CFO isn't brought in only when a company has problems. Often they're brought in when the company wants to take its next step more consciously and on a stronger financial foundation.

Accounting shows what has already happened. Financial management helps decide what should happen next. If you want to get your company's finances in order, get in touch with KL Raamatupidamine.

Read on: Part-time CFO · Business controlling · Financial controlling · Pricing