This podcast lasts for 8 minutes 49 seconds.

A written format is available here.

The first step in the hiring process is to define the job you want filled. What specific results should the CFO produce for you and your company? Are you concerned about running out of cash because you have taken on a big project but will not get paid until completion? You worry about having enough cash on a regular basis. You are not certain that the bookkeeping is being done in an efficient and rigorous manner? What else of a financial character concerns you? Is your CPA driving you crazy with questions or suggestions that you do not entirely understand?

Make a list. Look back at the seven reasons I gave in my earlier article and see if this don’t provoke some additions to your list of worries. When you have completed your list, these are the problems, largely, that the CFO should solve.

Do not spend too much time thinking about exactly which functional skills are required to produce these results. It is the job of candidate CFOs to demonstrate to you that they have solved problems like yours and produced the required results. You are not hiring a trainee or development project, you are hiring an experienced CFO.

A few concrete skills and experiences you should look for.

First, your CFO must know how to get their hands dirty. This means they must have active skills to build spreadsheets and extract information from financial software systems and paper documents. Second, they must know how to present this to you in a clear, actionable format. A key task for them is to get financial information about company performance into your hands in a timely fashion and in a format that leads to making decisions. Third, preferably they will have experience in your industry so that they can set the analysis within the context your business lives in. Fourth, they should have worked as part of a team so that they have the skills to present the financial “score” clearly and then engage in a dialogue with the other management team members to help drive the business forward in a coherent fashion. At the level of the CFO, finance is not an isolated function, rather, it plays an integral role in managing the ongoing business and developing new strategies.

Write a one page description of the results you require and the skills and experiences that you think will be needed. Keep this simple - bulleted lists are great. You will use this when you go to the next step.

Where to go hunting?

You should certainly alert your close business associates that you are looking for a part-time CFO.  Do a Google search. There are now plenty of providers of these services. Here is a saved Google search (opens new browser window). Put an ad on Craigslist.

I would suggest starting out with the consulting firms that specialize in this work. Interview a couple. You will learn a great deal about how they might approach your situation. This may help you sharpen what you want to achieve. Under no circumstances should you pay for an assessment or any other consulting projects as part of this interviewing. Any consultant should be more than willing to come to your office to talk things over without any further obligation. Since they are experienced, they will conduct their assessment of the situation right in front of you and with considerable accuracy in under an hour. Don’t forget consultants interview far more companies than you.

You may be overwhelmed by the number of candidates. Just pick out three or four who really seem solid. If you are comfortable on the telephone, conduct a telephone interview to sort out the persons you want to invite for a face-to-face.  This article is not the place to discuss interviewing strategies and techniques, but certainly keep in mind that you will be looking to confirm that they can deliver the results you are looking for and have the inter-personal skills to work well with you and the other members of your company. Envision this selection process just as you would for a permanent full-time employee. A CFO, even a part-time one, should be a significant asset in your business, not a simple replaceable part.

The Deal.

Experienced consultants will always present you with a proposal that describes the scope of the tasks, what they will do, and what the “deliverables”, the results, will be. This proposal will also indicate some level of effort that they expect to put into the job. Keep in mind that they do not have to be on site to be productive. The proposal will also define some compensation arrangement for the work. Some will charge on an “as consumed” basis to an hourly or daily rate. Others will propose a fixed monthly charge for the level of effort described. Everything is negotiable, so think through how you would like to work. Always make sure to include an early review period (more on this below) and a cancellation process that is mutual and no-fault. Finally, you should look for a non-disclosure statement as part of any contract to protect your confidential business information.

Getting to Work.

Set time aside immediately to introduce your new CFO to every aspect of your business. They really need to understand what the business is about, who the customers and vendors are, and a myriad of other facts. Include a discussion of your forward looking plans and strategies so the the CFO can set these objectives in view as analyzes are developed.

Be sure to check in regularly with your CFO to make sure that progress is being made on the results you need. Set an early time for a formal review session. A month to two months from the start date would be right. You want to take an early reading of how the CFO is functioning. You will almost always have to make course corrections both to objectives and work processes. However, if you see that you or the CFO have made a mistake and the relationship will not work out, do not delay. Bring the relationship to a halt right away.^[[1]] Find another CFO and ask the old CFO to bring the new one up to speed. You are dealing with professional consultants, not employees. They never like to loose a client, but they will certainly do their best to make the transition smooth. They need you to think well of them.

This is just the beginning of your work with your new CFO. It will be productive. Have fun.

1. I wrote about this issue in an earlier article, “Managers – Early Intervention Is Key To Getting Your People Right” (opens in new window), that you can review if you find yourself in this situation.

This podcast is 7 minutes 20 seconds long

In this time of readily available outsourced or part-time professionals there are very few worthwhile reasons not to have your own CFO. Depending on your size, your CFO might appear once a month or several days a week.

So, let me list a few reasons for you to find a part-time CFO.

1) Keeper of the Numbers. A primary function of a CFO (and the whole accounting/financial management infrastructure) is to keep the numbers for the organization. It is very important that those who are producing the numbers (sales, marketing, operations, new product development, engineering, and so on….) not also keep track of the score. In part this is because keeping score is not what they are really good at. More importantly, you want to avoid the temptations of manipulating the numbers or running off into to self-deluding behaviors that inevitably come from the doers keeping the score. In a parallel line of organizational processes, accounting systems are double entry exactly to increase the difficulty of theft, at the worst, or simple bungling errors. Having a separate score keeping system provides the duplicate set of eyes, ears, and thinking to assure that the top and bottom lines are real and accurate.

2) Cash Flow Analysis and Management. Your part-time CFO will create a cash flow projection spreadsheet so that you can see what your actual situation is today and what it will be in a week, month, or quarter. This will allow you to manage your cash with full visibility to all its sources and the claims against it. This invaluable little tool will also allow you to perform “what-if analyzes” that will show the impact of all sorts of business decisions on your current cash and probably future cash flows. This will move you beyond looking at your checking account and applying mental gymnastics about who owes you money and who else has claim on it.

3) Product/Customer Analysis. Where are your sales and profits coming from? Which of your products, product lines, and customers are actually producing sales? Which are producing profits? Your part-time CFO will build another spreadsheet, extracting information from your accounting package, that will build a picture, in numbers, of how your business model is working. Instead of looking at the aggregate, you will discover where and how you are actually making money.

4) New Product/Project Development. Your CFO will look at the business model for major new projects,  products, services, new acquisitions, mergers, etc. and present an analysis, based on the best numbers available, of whether the project will make money and when. The CFO holds your feet to the fire and brings a different perspective to the enthusiasms of the deal makers, the engineers, and marketeers.

5) External Relations. Bankers and other institutional sources of money have their own language, world views, and processes. CFOs know how to deal with these parties effectively.  Working with the owner, better deals and smoother longer term relations are more likely. In addition, CFOs can manage relations with payroll companies, accounting software vendors, and other third party providers to the financial and administrative components of your business.

6) Implementing Tax and Legal Recommendations. Your CFO will work with your CPA to implement strategies to achieve tax related objectives. CFOs and CPAs share enough common language and process to work together much more effectively than most business owners/managers. And, the CFO can be uniquely assigned to assure that the required tasks are carried out.

7) Organizational Integrity and Reliability. Finally, your CFO will examine your business systems to assure that they are rugged, reliable, accurate, timely and as theft-proof as possible.

In another article, How to Hire a Part-time CFO, I  examine how to find and select a part-time CFO and how to establish a good working relationship that is well integrated into your company.

I picked up this little book, Warren Buffett and the Interpretation of Financial Statements – the search for the company with durable competitive advantage (Scribner: New York, 2008), thinking that I might learn something valuable about the current economic mess and as a possible guide to shaping personal investment decisions. However, from the small investor perspective of building long-term wealth the strategy is summed up in the tag line: “durable competitive advantage”.^[[1]]

But, to return to the Buffett book, I am struck by another use of this book. That is as guide  to the basics of how to read and interpret the important elements of a company’s financial statements. The book covers The Income Statement, The Balance Sheet, and The Cash Flow Statement. If you feel uncomfortable or completely ignorant of these three financial documents, this book might just do the trick.

While you are learning about Warren Buffett’s approach to durable competitive advantage, you will be lead through a tour of these three statements. This is a very literal line by line march. For instance, thirteen chapters, averaging three pages each, cover all of the common elements of the income statement. With the example statement always in sight it is easy to follow the calculations to see what Gross Margin or Earning per Share mean. If you find Depreciation a mystery, this is covered too. In this era of excessive leverage, the book carries along a discussion of the impact of debt on the performance of a company.

So, pick up this book at your local library or buy it. You will understand more about the how and why of Warren Buffett’s strategies and learn to understand financial statements. Then, get out your own statements and march through with this book as a guide.

1. My attention for that purpose has shifted to another more compelling analysis – John Bogle’s The Little Book of Common Sense Investing (John Wiley & Sons, Hoboken NJ, 2007)