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Financial Management: Is It Time To Rent-A-CFO?

Chief Financial Officer carries out the action plan

You’re the founder/CEO of your own company. You built it from an idea and nurtured it through periods of resounding successes and maybe even a few embarrassing failures. You’ve experienced the heights of excitement and the depths of frustration, and through it all there’s been a lot of plain, hard work. And now you have a business that really works and has great potential.

What it also has is a major operating challenge that may now have reached the critical stage:

The Challenge...

For a company in an early stage growth mode its most pressing issue may be positioning itself to seek outside funding or to give it the best possible utilization of its resources.

Preparing the company financially for an anticipated management transition may be the goal for a successful family-owned business, perhaps caused by retirement or the desire to pursue personal interests outside the business.

For a company that has reached consistent profitability its top objective may be implementing cost-effective policies and programs to retain a highly trained staff whose loyalty is critical to continued success. How can you make it happen without losing the lean aggressiveness that got the business to where it is today?

By contrast, the company fighting for survival may need every hour of time it can spare to gain creditors’ and investors’ patience while it develops and implements a financial turnaround strategy.

Now What?

After discussing the options with your key managers, you learn that no one on your staff has faced a situation quite like this before. In fact, in-house options all seem to have a trial-and-error flavor. Your financial management team consists of a small but capable staff and a bright young controller or manager with lots of education and potential but not a lot of experience. You conclude that the company needs some experienced financial input. What is the best source? An outside financially oriented management consultant.

You talk to three or four consultants who have been referred by your attorney, your CPA or your banker. Each appears competent, with lots of experience either in successful corporate financial departments, public accounting, or both. Each is willing to perform a study and give you written recommendations for corrective action that you would implement as they would if they were your CFO or controller. You feel good about working with two of them. One even has clients about the same size as your company. What’s wrong with this picture?

The company needs some experienced financial input. What is the best source? An outside financially-oriented management consultant.

Who gets to execute the recommendations? You could do it yourself. But you’re already putting in full days running the company, being its principal salesman, its sole long-range strategist, and its PR spokesperson. And do you feel comfortable working in financial areas? Many CEOs admittedly don’t.

Well then, your right hand man, your senior VP, or your controller, if you have one, can implement the recommendations. But then they’re probably pretty busy, too. Besides, if you’d felt comfortable with their background in this area would you have looked for a consultant in the first place? It sounds like you’re back where you started!

If all this sounds like catch-22, maybe that’s because it has been just that for many owners and CEOs who face challenges like this every day. Let’s suppose you take a different tack this time. Decide that your time will continue to be spent doing what you do best and you will take firm action to bring these operating frustrations under control. You can’t yet justify adding another permanent, high-cost employee to the staff. You decide to put the task in the hands of an outside expert who will quickly come to understand your vision and your company’s mission, and then will "just do it," with no strings attached.

There are a lot of very good consultants in the market today. Many of them are financial management consultants. And all of them will help you do something, tell you how it should be done, what you should expect, and write a business plan for your use? For your use.

But only a few will do the work for you and stand accountable for the results as a committed member of your team. Fewer still make that the primary focus of their business..

These few hardy souls who do are known as Itinerant CFOs, Part-time or Interim CFOs. (We call ourselves "Your CFO For Rent^®") They are a small but rapidly growing segment of the consulting community. We believe this is in response to dual pressure points:

• The increasing emphasis on financial performance for the long term, and 

• the intensely competitive environment for capital that makes recovering from corporate mistakes more difficult than ever.

Recently one of the nation’s largest accounting firms announced its first contract with a client to rent out a member of its staff as the client’s CFO.

What is a CFO-For-Rent?

Simply put, this is a person who you would want as your company’s top financial executive. He or she has ideally been a financial manager in a large, well-run company where he learned the "right way" to do it. He’s filled a senior financial role in smaller companies where he had to adapt his vision and experience to the "real world" of expediency and survival. A few have held operating or general management positions along the way, resulting in a truly balanced approach to problem solving and crisis management. He gets great satisfaction achieving results, and the constant need for that fulfillment has produced a traveling change agent, financial version.

In the initial phase of a new engagement, the part-time CFO will reach agreement on the scope of the work with the CEO and appropriate members of management. The company’s principal needs and the primary job responsibilities will be defined. You will establish a clear understanding of what you believe the end result should be for each area of need. The CFO will likely want to collect and analyze some information to help him determine if the underlying problems are as presented. Following a review of his findings, the CFO will write an action plan which:

• proposes a course of action for each area of concern,

• defines those actions that fall within the scope of his assigned responsibilities, and

• recommends responsibility and action for each remaining area.

Then he carries out the action plan. His efforts will likely be a blend of his own hands-on involvement and directing the financial department’s staff. He may build a computer model, revise the accounting system, lead brainstorming meetings with key staffers, or explore possible solutions or suppliers. He may work with your CPA to devise more relevant tax strategies, or meet with your banker to pursue expanded credit lines. He didn’t choose this kind of work because he prefers the ivory tower, so you will see a lot of activity when he’s around.

But you already have several outside advisors. Why another one?

When you need financial information, counsel or action, you want it from your own CFO, from someone who knows your company better than your outside advisors do. The CFO-For-Rent spends part of his time at your offices working with your employees and seeing first hand what works and what doesn’t. So, when you sit down to discuss improving cash flow, your options to raise more money, or you chances of meeting the forecast, you don’t have to give him a lot of background to get him up to speed. He knows it already because that’s his job. Your banker calls him without hesitation to ask questions about your latest financial statement because your CFO speaks his language and knows your company. You’re comfortable with that because he’s your CFO.

Why would a company want a part-time executive in this critical area? Why not hire a full-time person who will always be there when you need him?

We firmly believe that a company with challenges to meet, whether to grow or to survive, should always employ the best people they can afford. If a company absolutely needs a full-time executive running its finances, the CEO should absolutely hire the best full-time executive available. But if the company doesn’t need 100% of a senior executive all the time, it should get the best talent it can afford for the amount of time he’s needed. The simple economics of the cost of a full-time senior employee (compensation, benefits, often including equity and retirement) makes the part-time executive a serious option.

He probably can’t. The value of such a part-time executive’s experience is that he works with the CEO to identify the highest priority areas. These then become his principal project list until the CEO changes it, either because of successful resolution or a more urgent need arising. In effect, a company enlists such services with an MBO-like mentality, with the intention of spending only as much on consulting fees as it needs to address its most pressing issues.

What about the company where so much has gone awry that the CEO is certain only a full-time effort can turn things around?

Seasoned part-time CFOs recognize these needs. They are typical in "turnaround situations," Companies with a management crisis caused by the departure of a senior executive, for example. Temporary CFOs can provide services in a two or three phase program. This may consist of a full-time commitment for some interim period (sometimes as long as six months to a year), which transitions into a part-time mode when certain pre-agreed milestones have been reached or when the CEO and CFO believe the situation has become manageable.

Crisis management aside, as assignment can end in several ways:

• the company’s financial situation has stabilized, policies and procedures are in place and being managed by full-time staff. The consultant is no longer needed.

• the company prospers and grows, and the consultant assists the company in locating and hiring a full-time employee – accounting manager, controller or CFO – to manage what has been put into place.

• for a mature company that anticipates stability, the temporarily-rented CFO may become a permanent (part-time) member of your management team.

Like more and more companies around the country, you have found a better way to solve an old, familiar problem, giving your company access to world-class expertise without the price tag. And your company has taken another big step forward.

About the author: Gene Siciliano is the founder and owner of Western Management Associates, a financial management consulting firm located in Los Angeles, California. His firm helps mid-size business clients improve the financial performance of their businesses, providing part-time or interim financial officers as well as the more traditional on-call advisors.

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