Building out a management team for a small entrepreneurial company can be a difficult challenge. Either you don’t need, or you can’t afford, a full-time financial executive, or you can’t attract one because you don’t have enough cash in the bank to make one comfortable enough to join you.
In almost all cases, these issues can be effectively dealt with by way of hiring a consulting Chief Financial Officer (“CFO”) on a contract basis.
A contract hire features one basic compensation payment on a frequency to be negotiated (usually bi-weekly or monthly), no employee benefits or other personnel costs incurred, and a well-defined ability to cancel the contract if you so choose.
Finance is a super important element in any company operation, but is often one that small company owners do not understand or don’t have the time or the interest to manage it properly. It is not a “one and done” element, it must be managed on an ongoing basis, amended as required to meet changing conditions, and communicated effectively to both internal (owners, shareholders, employees) and external (suppliers, bankers, accountants etc.) stakeholders.
The form that communication takes is essential. Employees generally do not have to know the inner financial workings of the company, but have to be given the opportunity to contribute to budgets and forecasts that are essential to creating forecasts and business plans. On the other end external stakeholders, such as bankers, need to understand your forecasts and budgets and be able to buy into them as a rationale for providing your company the operating capital it needs to carry on business comfortably. A consulting CFO can effectively coordinate all of these elements for company owners.
A true consulting CFO…not just a financial person who is between full-time positions and who will probably leave you as soon as another full-time job comes along…can handle all of the elements to give you the required information, and discharge the required protocol to ensure that your company finances operate properly…and can do so at a considerably lower cost than a full time financial professional. Annual CFO salaries in Canada generally run between $80,000 for a junior fresh-out-of-school individual with no experience to $200,000 for a senior professional with many years’ experience. Add employee costs and benefits and it is easy to see how the latter compensation package can cost a company close to $250,000 a year. This cost is not alleviated if a company uses existing external accountants…time allocation is usually difficult for professional accounts with any kind of a public practice and charge-out rates are generally pretty high. In addition there is no ‘checks and balances’ environment that would exist if our external accountant remained in an essentially arms-length relationship with your company. With a consulting contract CFO you have the ability to negotiate a compensation package that is within your company’s resources, still be assured of getting the important financial assistance and control that you need, and still retain the relationship with your external accountant that provides a good critique of your financial situation.
Generally a good consulting CFO will look after all of the following elements of your company operation.
- Ongoing review of internally-prepared financial information and statements.
- Consultation with external accountant as to proper allocation of assets and liabilities.
- Consultation with external accountant as to tax treatments.
- Ensuring that financial information is up-to-date and presented in a properly structured manner that can be easily understood by external users
- Regular review with management to ensure that all elements are understood internally for the purpose of making ongoing management decisions
BUDGETS AND FORECASTS
- Preparation and review of budgets and forecasts so that management understands where the business wants to go and the progress it is making in getting there
- Review and update of these forecasts and budgets with company management on a regular, ongoing basis (monthly, quarterly etc).
BUSINESS PLAN CREATION
- Creation of a long term plan for the development of the business complete with a statement of business goals, the reasons for the goals and a plan for reaching them, an analysis of capital needs and a game plan for obtaining this capital.
- Negotiation on behalf of the company with the capital sources
CASH FLOW MANAGEMENT
- Creating, reviewing and overseeing the implementation of a cash flow strategy designed to make the company operation optimally effective and efficient.
- Reviewing cash flow regularly with management to ensure that expectations of management and future operations can be financed effectively from available (internal and external) resources.
- Dealing with all external stakeholders (bankers, accountants, suppliers etc.) and with shareholders to ensure that the company’s relationships are properly understood by all parties.
- Resolving problem areas as required.
- Work with external accountants to ensure that annual financial statements are prepared in the most appropriate format (audited or not) with necessary support explanation needed by all external sources of capital.
- Work with external accountants to ensure that any Canada Revenue Agency audit is completed in the most efficient manner.
DEAL SRUCTURING AND ANALYSIS
- Provide critical analysis and advisory service of all deals and/or contracts entered into, so that the company is assured of profiting from each one
In summary, a consulting CFO can provide a smaller, entrepreneurial company with the resources it needs to handle the very important financial element of company operations properly and effectively, without obligating the company to onerous costs.
Canova Bancorp has more than 20 years’ experience providing financial services to small companies and looks forward to continuing to provide those services in the future.