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Do You Need a CFO or Just a Controller? - people working at desk, papers, book, calculator โ€“ Redpath

Does Your Manufacturing Company Need a CFO or a Controller?

by Brian Sweeney, CPA

January 12, 2021 - No matter the size of your manufacturing company, there's likely to come a time you'll wonder if you need more internal help with your finances. If you don't have one, you might consider hiring a chief financial officer (CFO) to help develop your finance team, work with your leadership team and add that โ€˜next levelโ€™ financial strategic thinker to help you achieve your growth goals. But the decision to hire a CFO isn't as straightforward as you might think.

"Not every company needs a CFO," Brian Sweeney, partner at Redpath, says. It might seem obvious, but it's essential to keep in mind that your company's need for a CFO will depend on your current financial needs, your capacity, and where you want to go in the future. Here are some best practices for deciding if and when to hire a manufacturing CFO.

Do You Need a CFO or a Controller?

Smaller companies, for example, often don't have a dedicated CFO. Depending on the size of your company, financial responsibilities might fall to the CEO, a high-level controller, or even a shareholder. For that reason, Brian notes the manufacturing CFO is a role that's "more likely to grow out of need" โ€“ that is, the function is often filled in response to capacity than to create growth in the company.

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The main difference between a CFO and a controller, Brian says, will depend on what aspect of your finances needs more of a focus. "A CFO is more forward-looking," he says, advising on the moves a company needs to make to remain financially viable in the near term and beyond. Controllers, on the other hand, "typically focus on historical information and the present state of your finances."  A controller will fill the role of producing reliable month end financials by knowing the numbers, analyzing actual to budget and managing current compliance needs. A typical controller doesn't usually fill a strategic advisor role for the leadership team.

Of course, all are essential elements of keeping your manufacturing finances accurate โ€“ but getting help starts with knowing where you need it most.

How to Know It Might Be Time for a Manufacturing CFO

"As your organization grows and becomes more complex, a CFO might be needed," Brian says. That realization might not happen at once โ€“ it might grow over time, as everyday financial work mounts. Brian says you should ask "base level" questions like these before choosing to hire a CFO:

  • Are key decision-makers being given timely and accurate information?
  • Is anyone evaluating external relationships like insurance, risk mitigation, and banking?
  • Who's managing financing terms for your company?
  • Who is analyzing cash flow related to financing equipment and facilities?

You might also realize you need a CFO at a key punctuation point in your company's financial roadmap. Manufacturing companies might consider hiring a CFO for things like:

  • Buying a new plant
  • Purchasing new equipment
  • Seeking larger funding
  • Financial modeling future cash flow needs
  • Understanding key financial drivers and holding team accountable to achieving
  • Proposing financial strategies to achieve future objectives and using key indicators to measure progress

Even at those pivotal moments, Brian cautions against quick hiring. "The decision to hire a CFO will evolve over time," he says. When manufacturing companies consult Redpath for hiring advice, Brian says it's often because key people in the company aren't getting the financial information they need on time and feel they don't have that strategic advice within their company. It becomes part of a trend rather than a particular inflection point.

"There's no bright line that says, 'You need to hire a CFO now,'" Brian says. But when you do, it's important to know who'll be able to address these higher-level issues and bring financial expertise and strategy to your company โ€“ today and in the future.

A Strategic Partner CFO Isn't Always a Full-Timer

Hiring a CFO isn't just about choosing the strongest candidate who can start ASAP โ€“ it's about knowing what your company really needs and matching a professional to that niche. Redpath assists manufacturing companies with the CFO interview process to "ferret out whether or not [a candidate is] a real CFO," Brian says.

Because it's a role shaped by your companyโ€™s needs, Brian has recommended fractional or part-time CFOs for certain scenarios. These can be independent contractors and non-salaried CFOs experienced in bringing manufacturing finances back under control. They can provide years of financial experience to help guide your company's decision-making without the long-term investment of a full-time hire.

Of course, fractional CFOs come with their own potential liabilities, as well. Their limited engagement means they likely won't have time to get to know your business intimately, not to mention the fact that they may leave your company if they receive a better offer somewhere else. Weighing all of these factors is essential when choosing whether or not you need a CFO, and if so, what kind of CFO you need.

With several possibilities available, the decision is about creating and filling the most lucrative role for your business. Brian recommends asking questions to envision what a potential CFO would look like at your company: "Are they a strategic partner? Or are they someone who's reconciling finances today? Which do you need, and which will bring the most value to your company?"Business Valuation

Brian Sweeney, CPA

Brian Sweeney, CPA

Brian Sweeney is a partner, the employee ownership (ESOP) team leader, and also a client manager specializing in financial statement audits, business and systems consulting, management and advisory services, and mergers and acquisitions. He works with closely-held businesses in a variety of industries, including manufacturing and wholesale distribution, with a specialty focus on employee-owned companies. As Redpathโ€™s ESOP team leader focusing on client services, financial health, and cultural consulting to employee-owned companies. He works to protect S Corp ESOPs and stays up-to-date and knowledgeable on issues, changes, and legislation through involvement and committee leadership roles in the ESOP community. Brian was elected to and serves on the board of Directors for the National Center of Employee Ownership. He is an active member of the Finance Committee for the ESOP Association, the Government Relations Committee of the ESOP Association Minnesota/Dakotas Chapter, and Employee-Owned S Corporations of America. Brian is a regular presenter on employee ownership topics at local, regional, and national events. He has provided public accounting services at Redpath and Company since 1998.

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