The CFO Temp

Kimberlee Toscano’s company was growing faster than its financial infrastructure could keep up with.

The company, Toscano Clements Taylor, estimates costs for state and federal construction projects. Before the recession, the Hamilton, New York, firm had seen its revenue grow to $2 million.

As pleased as Toscano was with her company’s performance, she was worried. Government policies require some contracts be given to minority-owned enterprises such as hers, but only if revenue doesn’t exceed an average of $4.5 million per year over three years.

To keep those contracts coming, Toscano needed to keep a check on growth while maximizing profit.

Toscano knew she couldn’t do it on her own. So she did what other mid-size companies in her position have done: she hired a temporary CFO.

Temporary CFOs are good choices for mid-size companies like Toscano Clements Taylor that are navigating uncharted financial waters. They can also act as infrastructure builders, partners and strategists. Many operated as full-time CFOs in prior jobs, switching to part-time because they prize the flexibility and challenge of working for multiple clients.

Mid-size company executives say they hire temp CFOs because they cost less than employing a full-time executive, yet provide much of the same expert counsel for complex situations such as mergers or divestitures, or simply to create a financial infrastructure where none existed.

Other times, owners and executives use temp CFOs to help make uncomfortable decisions – such as recommending a layoff – because difficult directives may be better received when delivered by an unbiased outsider.

Here’s a closer look at three roles temporary CFOs can play, as infrastructure builders, partners and strategists.

Infrastructure Builders
Growth is great, right up until it becomes unmanageable. For growing companies, temp CFOs can be infrastructure builders who bring financial order to chaos.

Eric Giler knew that’s what he needed in 2008 when he took over as CEO of WiTricity, an MIT spinoff that produces wireless electricity technology.

When Giler arrived, the Watertown, Massachusetts, company lacked most of the financial processes that prospective investors expect to see. For one, the company had no mechanism for pricing common and preferred stock, necessary building blocks of a stock options program. Without options, there was no way for WiTricity to recruit tech talent.

Through an industry contact, Giler found Joanne Bryce, an experienced CFO who’d spent the previous eight years helping young companies raise money. It didn’t matter to Giler that for most of that time Bryce had worked as a temp CFO, often from her home office, nor that she wanted to continue working that way. As long as she could do what needed to be done, he was OK with the arrangement.

Within months, Bryce had established the necessary mechanisms for Giler to manage growth, including building WiTricity’s financial statements and leading its annual auditing process. She also helped raise funds from investors.

Since then, Bryce has become a part-time employee, though she still works remotely as often as possible, Giler says. Thanks in part to her efforts, WiTricity is on track to produce 2010 revenue of $5 million, up from about $1 million last year. All in all, “I've been very, very pleased with how it's worked out,” Giler says.

Partners
Where infrastructure builders leave off, partners begin. These part-time CFOs help CEOs who possess neither the time nor skill to handle the operational duties of a financial executive. They can also help companies that lack the budget to hire a CFO full time.

“Certain business owners are really good at what they do, good at finding customers and creating products that fill a need in the market,” says Ken Kaufman, founder of CFOwise, a Utah-based financial staffing firm. “Their business has grown to the point that they don't really have a handle on what's going on and what they need to do to get where they're headed,” Kaufman says

Part-time CFOs fill this need in two ways. First, they create a financial infrastructure. Then, once mechanisms for tracking financial performance are in place, they advise clients on what the results mean. That could be everything from weighing the merits of a proposed merger to evaluating the effects a new large customer will have on staffing and support

“A CFO has to be somebody who gets the whole picture,” Kaufman says. “They understand the whole company and how everything works and interrelates to make a profitable business. We're all people who know how to roll up our sleeves and make stuff happen.”

Kaufman, who supports 12 clients, says this sort of work requires only a few hours a month and costs a fraction of the thousands a full-timer would earn. Similarly, B2B CFO, a Phoenix temp CFO firm, asks only that its clients to commit to at least $300 to $400 a month in fees.

Strategists
Sometimes a company’s problems are more than the management team can handle. That’s when Sheri Pawlik gets called in.

Pawlik knows what it’s like to work in a distressed industry and for distressed companies. Today she’s a Detroit-based business-to-business CFO consultant. But before that, she spent more than 18 years in finance in the auto industry, first at General Motors, then at Chrysler.

In July 2008, Pawlik started helping a company that services medical imaging devices improve its cash management. “The balance sheet was a mess,” she says.

Pawlik spent the next five months reviewing customer contracts. As 2009 dawned, she secured permission from the owner to begin firing unprofitable customers, including the firm’s largest client.

Internally, Pawlik oversaw a series of deep cost cuts designed to match the size of the business with the lower revenue it would be collecting. Little was spared, which was the point. “We wanted to send a message,” she says. “We didn’t just get rid of your co-worker to make more money for the owner. We did it because we need to reduce fixed costs.”

As a CFO-for-hire, Pawlik could provide cover for the owner, whom she says was reluctant to make decisions that would affect his staff.

Doing so paid off. Today, Pawlik says her client is seeing higher operating profit even though revenue has declined.

Winning at the growth game
Toscano, the construction cost estimator, says she’s able to more carefully manage her business thanks to freelance CFO Christine Cox.

After Toscano brought her in, Cox spent four weeks poring over the firm’s books, collecting data for a profit and loss statement and synthesizing everything else into two spreadsheets: one for cash flow projections, the other for sales projections. All were activities the firm had never done before.

Today, Toscano Clements Taylor is back to $2 million in revenue and growing, and Cox is training a company employee to take over her job. It’s exactly the result Toscano hoped for. “We were growing so quickly we needed someone to put in some basic foundation. We have that now,” she says.