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As your business grows, its financial requirements and problems will become more complicated. Though you may be relying on an accountant to help you with financial management, you should think about bringing in a CFO (Chief Financial Officer), especially if you plan to have a professional on board with high-quality prowess in financial leadership.
Though most small and mid-sized companies don’t have any plans or budgets for hiring a full-time CFO, you must give it a thought once your business has accomplished a certain level of success. If you want to hold onto that growth and continue scalability into the future, hiring a CFO should feature on your priority list.
From helping you raise capital and overseeing the cash flow, budgets, and profit margins to negotiating better banking relationships, offering advice on when your business should expand or start exploring mergers and acquisitions, a competent CFO will do all these and much more.
But how do you decide when it’s the right time for your business to hire a CFO? Here are the top three tell-tale signs that indicate you need to hire a Chief Financial Officer right away.
1. Your Business is Growing Rapidly
Rapid growth is a definite sign of success and you should be elated to notice your business attaining newer heights. Yet, when growth isn’t managed carefully, it could cause your downfall.
Not sure how?
Without proper financial planning, fast growth can trigger a cash flow crunch, which will make your business struggle to meet higher demand for your products or services. Additionally, you may battle operational inefficiency, which will cost your company money, time, and other resources. Outgrowing your business structure and running into liability problems too could be a big issue.
If you hurry to meet increased demand without proper planning, you might even start getting a lot of negative feedback due to poor customer service, which will adversely affect your brand and business reputation in the market. Poor planning in terms of hiring new people, which often takes time, could mean your existing workforce feeling overworked, as they are compelled to work for long hours to keep pace with your business’s rapid growth.
Outgrowing your current office, retail space, or warehouse before your existing lease comes to an end could be yet another problem to deal with. As a business leader, you may even find your ability to lead and manage taking a beating as you come under a lot of pressure to perform due to escalating customer demands and the in-house tension of handling rapid growth.
Whether you need additional capital, plan to assess financing options to manage rapid growth, want to analyse data to predict market trends and demand growth while recognising new opportunities, or get financial insights to avoid operational problems, a CFO can help. By letting you plan well, your Chief Financial Officer can help manage business growth at a reasonable rate, which will help you avoid several problems mentioned earlier.
Business growth is good, but you need to manage it well while addressing and mitigating the associated risks to leverage the benefits such growth brings.
2. Your Business is Battling Cash Flow Issues
Your business has both long-term and short-term cash needs. Proper cash flow projections and budgeting need to be done for them to ensure your business operations don’t get into troubled waters. Yet, you could face hard times in terms of cash flow, especially when supply chains run amok, interest rates fluctuate, or economic downturns happen.
When you hire a CFO, the professional can take multiple steps to help you navigate through cash flow issues. For starters, your Chief Financial Officer will analyse and streamline the cash conversion cycle to minimise the time taken to convert inventory into revenue. This will help your business have the needed liquidity to meet its short-term obligations while maximising cash flow.
Robust financial planning is another vital aspect a CFO can help you with. With comprehensive financial planning, a Chief Financial Officer can help identify and proactively address potential cash flow gaps, seize potential opportunities, and mitigate risks. Capital structure optimisation, cost management and optimisation, and risk management and mitigation are other ways a CFO can help.
3. Your Business Profitability is Taking a Beating
- Is your business suffering from low profit margins despite driving revenue?
- Does your business strategy lack financial inputs?
- Is your business struggling with untimely or inaccurate financial data?
- Are your outdated accounting practices making it difficult to comply with legal and industry requirements?
These are some crucial aspects, which indicate problems with your cost structure, client base, business plan, and accounting practices. All these and more can be addressed by a CFO.
From giving your business the financial insights it needs for informed decision-making to minimising costs, increasing cash flow, and changing strategies, a Chief Financial Officer can do them all to maximise profit.
If your business tends to bring in new customers without estimating the costs of serving those customers, your CFO can ascertain the costs and let you make data-driven decisions regarding what needs to change to make money and boost business profits.
Final Words
All businesses don’t need a Chief Financial Officer. But if your business shows signs that it requires an executive role in the finance department as it grows rapidly and things undergo a change, it’s time to bring in a CFO.
If you are ready to hire a CFO, who will help you make informed, data-driven decisions, but can’t find the right candidates, let our team at InHunt World help you!
This article was written by InHunt World