The Many Hats of the Small-Business CFO

The Many Hats of the Small-Business CFO

Sep 14, 2022

pa-cpa-journal-the-many-hats-of-the-small-business-cfoThe majority of Pennsylvania CPAs will, at some point in their career, work for a small to midsize enterprise (SME). Maybe it will be after they start their career at a large public accounting firm or after they’ve progressed through various roles at a major public company, financial institution, or consulting firm. Perhaps some will work within the SME environment their entire career. Regardless of the path taken, working for a small business, for many in our profession, is a rite of passage. 

It could be said that being a small-business CFO is the greatest job in the world – at least it is a claim that I often make! Do you have what it takes to be a small-business CFO? Do you look good in hats? 

I became CFO of a privately owned small business after starting my career as an external auditor for PwC in Philadelphia, followed by a long career at Campbell Soup Company. This feature provides thoughts on successfully navigating the transition to a small business, including examples of the attributes you’ll likely need and the many hats you’ll likely wear as a small-business CFO. A note to the reader: While I may emphasize CFOs, this advice also applies to those in management accounting, finance, and controllership. 

The Transition 

When you work for a larger organization – whether it’s a big public accounting firm, Fortune 500 company, or otherwise – it can become easy to take things for granted. Such enterprises seemingly have unlimited resources. The organizational structure and reporting lines are relatively clear, even when you are subject to dual or matrix reporting. There is an intentional internal control environment, including defined governance, a professional board, documented policies and procedures, and delegation of authority. There are operational and functional teams (and sub-teams) charged with developing strategic plans, executing against them, and refining them along the way. Larger enterprises may not be perfect, but, relative to many of their SME counterparts, they are usually well formed structurally. 

After spending time working for a large company, being named CFO of a small business and transitioning into this new role will prove quite an experience. But what exactly is a small business? According to the U.S. Small Business Administration Office of Advocacy’s 2021 Small Business Profile, 99.6% of Pennsylvania businesses are classified as “small” (i.e., firms with fewer than 500 employees) and 46.3% of Pennsylvania’s workforce is employed by small businesses.  

From day one of the transition, you must be willing to roll up your sleeves. In a small business, you’re unlikely to find layers of management and abundant talent. More likely, you will have a small team with a lot of responsibility and who may, or may not, have the experience you might have expected. Suddenly, you are personally signing vendor checks, calling customers about past due receivables, approving journal entries during closing, and performing other tasks you haven’t performed since the early days of your career. Yes, it can be chaotic, but you are also very close to the beating heart of the business. You can quickly put your finger on the enterprise’s pulse and know what is going on.  

The expectations of a new small-business CFO will be high from the start. In a large enterprise, losing a key member of the team can be disruptive, but with numerous resources and likely redundancy, you can overcome the challenge in short order. Losing a small-business CFO, or even a junior member of the CFO’s team, is a much bigger deal. And if a role has been vacant for some time – not a rare occurrence amid the “Great Resignation” we are in the middle of – the impact can be much more severe. From the start, an SME CFO will confront questions like, “Sales are up but cash is down – why?,” “The financial statements haven’t been issued in months – when can we get them?,” or “Now that you’re here, can you get this key initiative going?” Fortunately, management accounting and finance executives love challenges! 
To increase your odds of a successful transition, here are a few tips to consider: 
  • Conduct prehire due diligence – As best you can, research the company, its financial performance, leadership, employees, industry, competition, etc., before saying yes to a job offer. Also, learn about the CEO and board’s vision, strategic goals, key concerns, and expectations of you. If the company is private, such insights may not be publicly available, so ask a lot of questions during the interview process. If you accept the offer, accept it with your eyes wide open.
  • Onboarding plan – Determine the expectations of you for the first 30, 60, and 90 days, as well as the first year overall. Negotiate an appropriate onboarding plan, including effective introductions to your cross-functional partners, the operations, key vendors, customers, banks, and others, as well as the industry overall. Gain clarity regarding the organization’s strategies, goals, and key initiatives. 
  • Build relationships – Proactively get to know your CEO, cross-functional partners, board members, and, most importantly, your direct and indirect team. Regarding members of your team, what are their goals and desires, strengths and weaknesses, key responsibilities, and areas of concern? Relationship-building is especially important if a member of the team was vying for the role you landed and is disappointed he or she was passed over. 
  • Assess current state of affairs – Once in the door, quickly assess how the organization is really doing in terms of financial performance, cash position, talent and culture, customer relations, supply chain, and other aspects of the business. You may have gotten a glimpse during the interview process, but now you need to see the unvarnished picture.
  • Stabilize the business – Many small-business CFOs are hired into an organization facing strong headwinds, maybe even crisis. Stay calm and do not overreact or underreact. Your immediate priority is to stabilize the business. Understand the company’s financial position, tightly manage cash, run various what-if scenarios, and strengthen the supply chain. You will have to make cuts if necessary. Then, after addressing the immediate crisis, focus on the long-term by finding new opportunities for growth.
  • Develop post-onboarding plan – Once you have assessed the state of affairs, built relationships, got to know the business, and stabilized it as needed, it’s time to collaborate with your CEO and board to align goals and objectives with a focus on creating sustainable economic value. 

Key Attributes 

The skills required of today’s CFO are broad, and at times will overlap with the responsibilities of cross-functional partners on the senior leadership team. The CFO’s role entails a wide range of skills, including strategic agility, general business acumen, risk management, technical skills, and overall leadership, among others. At the same time, CFOs must be adaptable to the nature and size of their company’s operations. The following are just a few of the key attributes that successful small-business CFOs possess: 
  • Business partner mentality – According to recent buzz, a business partner approach has become increasingly important for today’s CFO. In reality, though, highly successful management accounting and finance professionals have always possessed a business partnership mentality. Leveraging their ability to think strategically, analyze complex business issues, and solve problems, along with their access to their organization’s performance and their insights regarding key drivers underlying the business, CFOs – more so than any other cross-functional partner – are ideally suited to be the CEO’s right hand. To drive and make strategic decisions, you need to be “at the table” every day.
  • Strategic agility – A CEO and the board need their CFO to understand that strategic goal-setting and risk management are crucial for the business. You need to establish business practices that are good for the bottom line and also support cross-functional partners in establishing meaningful strategic plans overall. 
  • General business acumen – All CFOs should understand their business’s operations, vendors, customers, competitors, and industry. This business acumen, however, is critical for small-business CFOs, who are expected to be the subject matter experts across a broader swath of the organization. By really understanding the business, you can more effectively influence strategic direction, assess and manage risks, identify opportunities, and make decisions that ultimately create sustainable economic value.
  • Technical and analytical skills – The small-business CFO, of course, needs strong technical and analytical skills. The CFO will likely be hands-on regarding financial reporting and analysis, risk management, internal control, tax compliance, treasury, external audit, and other such matters. In addition, the CFO’s ability to solve problems and provide data analysis and insight will facilitate making more effective decisions.
  • Curiosity – Management accounting and finance professionals tend to be inquisitive. This is especially helpful in a small-business environment. By questioning and challenging the status quo, you can enable new thinking and breakthrough ideas that can change the course of the organization itself.
  • Leadership – As a key member of the senior leadership team, the small-business CFO should possess vision, executive presence, courage, political savvy, emotional intelligence, team building, and other leadership qualities. The CFO should also exhibit integrity, confidence, a positive “can do” attitude, and agility. Likewise, the CFO must have strong communication skills to influence up, down, and across the organization. 
  • Results oriented – The small-business CFO must be results oriented, ensuring the overall team remains focused on executing the organization’s plans with excellence and ultimately creating sustainable economic value. 

The Many Hats 

Being a small-business CFO is dynamic, challenging, and exciting. It may well be the greatest job in the world. Why? As a small-business CFO, the variety of hats you wear is amazing! Here are just a few: 

  • The CFO – The small-business CFO is, of course, first and foremost the head of finances. As such, you are responsible for cost accounting, financial closing and reporting, cash management, internal control, tax, capital investment, and so on. Don’t underestimate the importance of these responsibilities. A small business I knew issued its financial reports more than 60 days after month’s end. Because they didn’t use a closing checklist, systematically close each reporting period, or prepare reconciliations, reported numbers were invariably unreliable and subject to change. No wonder they couldn’t effectively manage their business and ran into financial troubles.
  • Business partner – In a small business, the CFO typically gets involved in every facet of the business. The CFO is an overall leader of, and business partner to, the company’s executive team. Most importantly, the CFO is the CEO’s sounding board and trusted adviser. By keeping a finger on the pulse of the business, updating cross-functional partners on your company’s performance, and asking the tough questions that come natural to CPAs, you can ensure the team remains focused on delivering results and support the team in making timely course-corrections as needed.
  • Strategist and risk manager – Does your organization have a clearly articulated vision and well-defined strategies that are understood and shared throughout the company? CFOs, leveraging their insight into financial and operational performance, can be instrumental in engaging cross-functional partners in deep reflection and reimagining the business, whether strategic planning is well-established or a new endeavor. Likewise, the CFO is well-equipped to lead enterprise risk management, which is all about defining the company’s strategic goals and objectives, doing what it takes to achieve them, identifying potential barriers, and overcoming the barriers accordingly. To that end, consider building business continuity, disaster recovery, and remote work plans. 
  • Beacon of ethics – Due to ongoing supply chain issues, inflationary pressures, and talent gaps, the incentive to cut corners (including ones requiring questionable ethics) has never been greater. As the finance chief, you are the arbiter of ethical business practices. You must shine the light on potential ethical blind spots, fostering accountability throughout the organization – up to and including cross-functional business partners, the CEO, and your board.
  • Talent scout, coach, and judge – For a small business, having the right people in the right roles is imperative. If there is only one sales manager and that person is ineffective, resulting in deteriorating customer relationships and loss of sales, it could literally be a company’s ruin. As talent scout, in conjunction with your CEO and human resources leader, ensure your organization’s talent is “fit for purpose.” Also, identify gaps, provide appropriate training, and hire new resources as needed. As coach, support the onboarding of new hires and the ongoing development of staff generally, whether they are a member of finance or a cross-functional team. As judge, ensure associates are being held accountable. Finally, ensure top talent is appropriately rewarded. 
  • ESG champion – Climate change and other environmental, social, and governance (ESG) trends have led to a call for increased corporate accountability. The CFO should take an active role – even when it’s not among the official responsibilities – in developing the company’s ESG strategy. By embracing and prioritizing sustainable business management – such as seeking sustainability initiatives with a positive return on investment such as investing in water recycling technology, efficient LED lighting products, or preventive maintenance programs – you can benefit your organization’s bottom line.
  • DE&I champion – Diversity, equity, and inclusion (DE&I), in addition to being the right thing to do, is increasingly becoming a competitive differentiator. Embracing DE&I leads to greater creativity, better decision-making, enhanced employee engagement and retention, increased productivity and profitability, and an enhanced company reputation. As a small-business CFO, you should be a champion, personally committed to promoting DE&I within your organization.
  • Relationship builder – Too often, SMEs take their bankers, accounting firms, liability insurance brokers, employee benefits consultants, and other such relationships for granted. As a result, these partners may disengage and/or deliver inferior service. Whether to gain cost savings, enhanced benefits, or gain more robust compliance, it is vital to shore up such relationships. CFOs should lead the way in building valuable relationships with these partners.
  • CIO – The CFO at many SMEs is the de facto chief information officer (CIO). From enhancing data security, maximizing the benefits of systems already in place, and provisioning IT-related training and upskilling, to driving an organization’s overall philosophy and strategy regarding new technologies, CFOs must continue to invest in the future. This starts with investing in yourself: build your knowledge of new technologies and trends, and cultivate a digital-savvy mindset. 
  • Other hats – The small-business CFO’s wardrobe never runs out of hats. Here are a few others you may want to try on:
    • Procurement officer – If nobody is managing competitive bidding, monitoring performance, renegotiating contracts, and holding vendors accountable, this hat is yours.
    • Treasure hunter – Search for savings initiatives and other opportunities to reduce costs and improve the bottom-line.
    • Chief transformation officer – Ensure large changes are successfully executed, whether they involve people, processes, or systems, or whether they are team specific or enterprisewide business initiatives. 
    • Mergers and acquisitions leader – Guide due diligence and fair negotiations (when acquiring or being acquired).
    • Corporate citizen – Build strong relationships within the community and with key community leaders.
    • Master of ceremonies – Make sure individual and team milestones and achievements are recognized.
    • Helping hand – Pitch in wherever and however needed. 

Conclusion 

If you are contemplating a transition into small business, do your due diligence and get ready to put on many hats. If you’re already a small-business CFO, try on a few new hats for size to drive your organization to even greater success. Once you’ve grown accustomed to your numerous wardrobe changes, you just may agree with me that you have the greatest job in the world!  

J. Stephen McNally, CPA, CMA, is chief financial officer, secretary, and treasurer for Plastic Technologies Inc. in Holland, Ohio. He is immediate past chair of the global board of directors for Institute of Management Accountants and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at j_stephen_mcnally@att.net or follow him on LinkedIn (bit.ly/3wDRUAJ). 

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