Tuesday, November 1, 2011

Why CFO's are Important

Darren Dahl, a writer for the New York Times presents a strong argument for hiring a Chief Financial Officer in corporate business. In his article he describes three scenerios that involve hiring a chief financial officer. The first involves a software company that sells applications for mobile devices that allow users to create and edit documents. This company is called Quickoffice. Quickoffice’s co-creator, Alan Masarek, was performing multiple duties as the chief executive officer and the chief financial officer. In 2010, Mr. Masarek decided it would be in the best interest of his company to hire a chief financial officer.  “It depends on how dynamic the business is. I needed to hire someone who could function as my business partner and allow me to step away from the books so I could manage other aspects of the business better.,” said Mr. Masarek.
                The second scenario is of a company called Parties That Cook. Parties That Cook is a company that holds parties and corporate team building events where the participants actually get hands on cooking lessons. In this case, the company is not large enough to justify a six figure salary for a chief financial officer so they elected to hire a part time chief financial officer. They hired Jeff Gustafson as a part time chief financial officer for $150 an hour for eight hours per month. In this limited time he works on several small projects to benefit the company’s financial situation.
                The third scenario is of VirtuOz, which is an online marketing, sales and support company. Their need for a chief financial officer comes from the fact that they are planning on becoming a publically held company. Publically held companies are held to a much higher standard than privately held companies are. This is why VirtuOz needed to hire a chief financial officer.
                These three scenarios show that there are many different reasons that a company can be in need of a chief financial officer. At a small start off company a chief financial officers are usually unnecessary. When a company is first starting up they normally just hire an outside accounting firm to do their finances and keep an accountant on hand to handle taxes and payroll. As a company’s financial reporting becomes more complex and more vital to their success it becomes time to consider hiring a chief financial officer. There are some basic guidelines that a company can follow to determine if they need to hire a chief financial officer. These guidelines are normally monetary in nature.  “Typically, however, hiring one does not become essential until companies reach a tipping point — often $10 million to $20 million in revenue.,” according to Mr. Masarek. Before this point there is always the option of hiring a part time chief financial officer such as Parties That Cook did. The biggest factor that keeps a company from hiring a full time chief financial officer is the fact that they typically make over one hundred thousand dollars per year. For a newly formed company this is a tremendous expense. Even with the high cost of a chief financial officer, it is unwise for a company to try to navigate these difficult economic times without the expert guidance of the chief financial officer.
                Dahl, Darren. "When Should a Small Business Hire a Finance Chief?." New York Times 10 26 2011. n. pag. Web. 31 Oct. 2011. <http://www.nytimes.com/2011/10/27/business/smallbusiness/when-should-a-small-business-hire-a-chief-financial-officer.html?ref=accountingandaccountants>.

No comments:

Post a Comment