The CFO in a family business is a key employee. Second to the CEO of the family business the CFO is your most valued employee.
Sadly we see many CFO’s of a family business effectively working as a glorified bookkeeper. And for many families the world of accounting and finance is a complex and confusing world.
We have identified a few key signs that give us pause when we deal with a new CFO in a family business.
With technology operating as it does the use of excel is most often a warning sign. Your accounting program should be able to produce quality management information directly without having to send the data to excel for manipulation.
If your CFO is using excel it is often a sign that the CFO does not fully understand the management reporting program they have.
The sign of a great CFO is one who can get amazing results out of a broken system. Which one is more difficult? Winning a formula one in a supercar or qualifying to participate in the Formula 1 race driving a Hyundai.
The CFO should really focus, at least for two years, on getting the current system to work rather than simply through it out and go to a system that they are already comfortable with.
Often a bad CFO will want to change the auditors, lawyers, accountants, insurance brokers and banks to somebody they know. This is motivated by the desire to be surrounded by a group of friendly advisors who are devoted to supporting the internal CFO.
If the CFO identifies a bad advisor they should try to actively work with the bad advisor for a lengthy period of time to ensure that the “bad” advisor becomes “good” without the need to terminate a long term relationship.
We all know that Perth is a small town. If your CFO is really unhappy with your current advisors simply ask for a one page synopsis of why. Do the same with the advisors. Then go to a separate, trusted, person and present the two opinions. Typically great professional advisors know of the others.
Also trusting your gut is important.
A great CFO should focus on the cost of administration. When they typically join a company the accounting system will be in a “mess”.
The great CFO’s we have seen spend an incredible amount of time clearing the backlog of work and automating the systems so that precious funds of the company are not spent on wasted administration staff.
Solid financial reporting of a CFO is one of their primary functions. However it should represent around one third of their time.
A CFO should focus around one third of their time on future events and forward planning, one third of their time in the capacity of treasury (or managing insurance, electricity and cost of overhead) and one third of their time in ensuring the past numbers are accurate and come out quickly.
If you want to test the CFO get them to project manage a function that is not purely financial. Many family businesses in Perth will look to their CFO as a replacement to their CEO later on. IF this is the case the CFO has to do something more than just financial reporting.
Any decent employee should make themselves dispensable.
If the CFO is presenting financial information: then the data supporting this information should be retained somewhere the directors can access. And this data should not simply be a report by accounting program: rather the monthly package should have some information presented that evidences the ultimate numbers and some evidence that the CFO (or their junior) has done a review of that information and considered it correct.
A primary role of the auditors and the tax accountants is to double check the work of the CFO. If the technical work of the CFO is poor; then in a family business these people are the only ones to really understand the poor work effort.
If your CFO is best friends with the auditors and the tax guys the independence of these consultants is at risk. Your consultants and CFO should be friendly but not friends.
However it is not simply enough for a family business to say “my CFO is bad I will sack them”. We have seen many families go through a revolving door of CFO’s and lamenting the difficulty in getting somebody great in that role.
The following guidelines are important in getting somebody on board
Let the CFO know in advance your frustrations and difficulty. If you let them know that there are some things they cannot change you will automatically start to push out the “bad ones”.
If you give clear guidelines on what you expect from a CFO you will also help that person grow into their role.
For the CFO to grow they will need ongoing development and support. If you do not invest in that person’s professional development it is unfair to complain that your CFO is not top of their game.
We are not saying that training will fix all of your woes – but it will go a long way towards making a good CFO a great one.
Sometimes a CFO will become despondent. They are at the top of their tree in the family business and they cannot see anywhere further. This is especially the case in Perth where true CFO jobs are not that many.
If you can demonstrate to the CFO that they can add value to the family business in the future with different and new paths you will create a more engaged employee.
Your family dynamics are complex. If your business CFO becomes enmeshed in the family’s personal finances and the family relationships you are making it very difficult to the CFO. Perth is small and often a CFO will somehow know a family member in a personal capacity.
At some stage your family will argue. Healthy families argue and sometimes do it passionately. If your CFO, as an employee, is witness to that, they will find themselves in a difficult position that typically involves a resignation.
As a practice we create a deep business relationship with the CFO. They are a key player in getting the family business great. And as a practice that is only focussed on family owned businesses we also understand the fine balance between managing the needs of the family and the needs of the business. This allows us a unique perspective in instructing the CFO in terms of their role and how they can contribute.
What is clear is that Perth families who employ extraordinary CFO’s find the long term benefit to the business is immense.
The CFO of your family business is a crucial to your business’s success, for CFO Services and business consulting advice, get in touch with our specialists.