There are a bunch of reports and surveys out there on what constitutes a good CFO, but they're usually too generals or cover large cap companies.
If we're talking about a $15m to $20m revenues company (slightly profitable, but could do a lot better), what would you say makes a great CFO? Basically, how do you become more than just the number guy without micro-managing?
Context: got an offer from the CEO of one of our portfolio company and I'm starting to wonder if I've got what it takes. I can't afford to be mediocre for the company's development... and the IRR of my fund.
Thanks
I would say being proactive rather than reactive. Initiate change and bring up ideas. This doesn't mean micro managing though; there's a difference between championing change and hovering over subordinates. If you do want to take control of the idea, get involved in the execution and not just the demand. Therefore you are managing a team of which you are partipating in, not just overseeing. In my mind a CFO isn't just in charge of the numbers and choosing which reporting standard to use. A CFO should be bringing forth any ideas that impact "financials", whether they be a financial strategy or an operational one.
Don't forget about cash flow - negotiation favorable T&Cs with customers/vendors to reduce working capital is also important
A family member took up the exact same position with a company in the food&bev industry about 2 years ago. He has been very successful with relatively little experience (about 7 years in finance/un-related industry prior to taking the gig). I have been to his offices a few times and have seen how he works. This is what I have noticed / what he has told me:
1) The guy is super direct -- no bs AT ALL. He says he/the company can't afford mis-communication. Although in the start some feelings were hurt, the entire team now understands and appreciates his bluntness. Its become normal for them.
2) With seniors: He understands that the CEO and some other senior managers have more experience in the industry. But he isn't afraid to question almost everything they do. I am not saying he does actually do this, but he takes a very critical approach to new ideas/plans/directions/etc. 9 out of 10 times, he may go along with them, but every now and then he is able to find a flaw/unseen risk in the team's logic. This skill has made him very respected among his peers.
3) With juniors: He expects them to work hard (like him), but is very fair. Understands that he is dealing with people with their own issues/families/lives. Has drawn a clear line between friendship and work. Splurges on the team from his own pocket (nice dinners every few weeks, birthday gifts, etc.) but can and will make it known when he is dissatisfied with them.
4) Regarding your "micro-managing/numbers guy" comment. Not sure if you want to hear this, but he is into almost all of the details of the company. The team might come to him with a small issue they are having, and 90% of the time he already knows what they are talking about without needing further explanation. I've seen this personally and its very impressive.
5) Worked extremely hard the first 6-9 months to get up to speed on all the major facets of the business (finance, strategy, purchasing, sales, manufacturing, marketing). He is no expert in all of these areas (except for strategy & finance, of course), but knows enough to sit in on meetings and positively contribute.
Was very tough in the beginning but the dude's job is amazing. Gets paid a sweet $250K, is a boss and gets to call shots, thinks big picture about strategic direction, has lots of autonomy, and now works about 9-6ish with NO weekends. Also received some equity in the biz (they might be looking to sell to PE in a few years) so there is upside as well.
Hope this helps.
In all honesty, unless I was getting very cold feet, I would take the CFO job. Won't know if you don't try, right?
Thank you, this is gold.
As for my "numbers guy" question, I actually meant to ask how can a CFO become more than just that. Since I'm an engineer by training, I do have a natural tendency to dig into the details and I just wanted to get a feel of how much I should get into them.
Unfortunately, won't be paid as much as your friend, but I think you're right and it's a pretty amazing opportunity which is well worth it.
In that case, I think #5 is what you'll probably need to do. Try to get involved with other parts of the company. Just be sensitive about it -- sometimes in smaller organizations people tend to be more emotional/defensive when someone new comes snooping around.
Maybe before joining have a sit down with the CEO expressing your interest in getting involved (even if its silently sitting in on meetings) in non-finance stuff. Alternatively, think of yourself as not only the CFO, but as CEO Jr. (learning about the entire biz, helping with all major strategy&planning, etc).
Agreed that #5 is probably the most important.
Another thing you might not think about but is extremely important in the middle market, is getting your controls in order - documentation, systems, processes etc. You are going to be pursuing a transaction in the near future (from the sounds of it)...you want every document produced in your department to be data room ready, and you need to have the utmost confidence in the numbers (which means having the proper personnel, resources and systems in place). Be prepared for the questions you are going to get during diligence ahead of time.
BTW -- are you post-MBA?
Companies with $15-20mm of Revenues don't typically have a "CFO". They have controllers. In fact, until you get a company north of $100mm, CFOs are rarely necessary, though present at times. But, generally, if you find a CFO at a smaller firm, they aren't on the same playing field in terms of the "total package".
From my experience in the MM, the best CFOs understand all aspects of finance. They quickly grasp concepts and models when it comes to capital raises, M&A or anything else out of the ordinary. Same with hedging, treasury mgmt, etc.
I don't necessarily mind if they are mostly a numbers guy, so long as they can communicate those numbers effectively if we are trying to raise capital or sell the company.
Perhaps the best quality of a CFO is being able to accurately forecast and understand what the future is going to look like, even if it is the near-term. If they understand the cash cycle of their business and can plug in extra capital or pay out excess (or pay down debt), that is a guy that is valuable. It looks easy to many of us, but it is quite difficult from the inside.
+++ to Mzz's awesome post.
Most of the PE-backed companies I have worked with in this size range (admittedly not a gigantic sample) do in fact have a CFO. Family run or entrepreneur run businesses in that size range that have never received institutional money - you're lucky if they have a proper accountant on staff.
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