Why SMEs should consider appointing a CFO
They are often seen as the ‘CEO in waiting’. A chief financial officer (CFO) plays a crucial role in protecting a company’s assets, ensuring efficient use of financial resources, and planning for the future. The position’s importance is rising in the corporate and investment world. Most big companies have a CFO, but rarely do SMEs in Africa fill the position.
Not having a CFO contributes to many small companies being “weak on the financials”, says Patricia Chin-Sweeney, senior partner and Africa director for I-DEV International, a strategy and investment advisory firm specialising in emerging markets business.
Part of I-DEV’s job involves conducting due diligence and investment analysis for potential investors to help them decide whether they should risk their money in a company. During this process, Chin-Sweeney says, weaknesses emerge in some companies, ranging from non-compliance with tax regulations to keeping multiple books.
“There are a lot of investors that want to invest in sub-Saharan Africa but they don’t have a physical full-time presence in the region. So they rely on us to do a ‘deep dive’ into the financials, make sure the company is paying taxes, are adhering to the best practices and their books are transparent,” says Chin-Sweeney.
But most challenges regarding financial planning and strategy would be solved by companies hiring a CFO, instead of merely relying on an accountant, as is common.
“The CFO is someone who is thinking strategically about spending for the company and monitoring that. An accountant would say they need to cut costs and slash XYZ because it is the highest expense. But sometimes the highest expense is something actually important. A CFO, on the other hand, would look at cutting out something that is not critical to continuing and growing the business operations,” says Chin-Sweeney.
As the scorekeeper, a CFO handles financial accounting and records, but they also maintain relationships with financiers, handle mergers and acquisitions, ensure compliance with financial regulations, and do budgeting and forecasting.
According to Chin-Sweeney, having a CFO is a new concept for most early stage companies.
“There is no reason why a good accountant can’t be a good CFO, but they’d have to be trained in leadership. They’d have to think like a leader of the company, rather than just the guy who manages the books.”