What happens when a family business outgrows its financial leadership? How can a company navigate the delicate balance between preserving family values and legacy while bringing in the external expertise needed to drive growth and success? The answer lies in the careful recruitment and integration of an outside chief financial officer.
Family businesses are the backbone of the economy. However, these enterprises face unique challenges when it comes to financial leadership and growth. As a family business evolves and expands, there may come a time when the skills and experience required to manage the company’s finances exceed those of the current CFO, whether they are a family member or not. This is where the decision to bring in an outside CFO comes into play.
Recognizing the Need for an Outside CFO
The decision to hire an external CFO requires careful consideration and a clear understanding of the company’s current needs and future goals. It’s essential for family businesses to recognize the potential need for an outside financial leader early on, before it becomes an urgent necessity, such as when the business is poised for significant expansion, exploring M&A opportunities, or the current CFO nears retirement age without a clear successor. We find that the reasons driving a family business to seek a new CFO are often similar to those that prompt a private equity fund to recruit a CFO for a newly acquired portfolio company.
By starting the process early, family businesses can take the time to carefully define the role, build relationships with potential candidates and showcase the unique opportunities and benefits of leading the financial operations of a family-owned company. This proactive approach can help attract a wider pool of qualified candidates and ensure that the company has the time to find the right fit—not to mention integrate a new leader.
There are several scenarios in which a family business may benefit from bringing in an outside CFO. When a business is in transition, such as exploring growth strategies or M&A opportunities, an external CFO can help navigate these challenges and provide the financial expertise needed to support the CEO in executing the business strategy. Additionally, as the business grows and becomes more complex, the company may require a CFO with specific skills or experience in professionalizing the financial operations, which the current CFO may lack.
For example, I recently worked with a privately held, second-generation, family-owned business that experienced rapid growth in recent years. The company’s CFO, a family friend who was retiring, served it well during this period, but their skill set was more akin to that of a controller. The next phase in the company’s transition required someone who could build a sophisticated five-year financial plan, support M&A and drive the company’s future growth strategy. What the company sought, and ultimately found, was a CFO who could examine every aspect of the business from a financial standpoint, perform sophisticated cash forecasting, understand and renegotiate employee benefits agreements and vendor contracts and integrate newly acquired businesses. This new CFO’s expertise and leadership is crucial in guiding the company through its next stage of growth and development.
This example highlights the importance of recognizing when a business has outgrown its current financial leadership and the value that an outside CFO can bring. By proactively addressing this need and finding the right person to support the company’s transition, family businesses can position themselves for long-term success and financial stability.
Challenges in Recruiting an Outside CFO
While bringing in an outside CFO can offer numerous benefits, the recruitment process itself comes with its own set of challenges. Family businesses must overcome a unique set of obstacles when seeking external financial leadership.
One of the most significant challenges is attracting top talent. Many qualified CFOs may be hesitant to jump into the fray of a family-owned business. The complex web of family relationships, emotional attachments and potential conflicts can be daunting for an outsider.
CFOs may worry about the difficulty of navigating family dynamics, the potential for resistance to change and the challenge of establishing their authority in a close-knit family environment.
To overcome this hesitancy, businesses must be proactive in addressing these concerns head-on. This can involve clearly communicating the company’s commitment to professional financial management, establishing well-defined roles and responsibilities and creating a supportive environment that values the outside CFO’s expertise and contributions.
Another challenge is ensuring cultural fit. Family businesses often have a strong, deeply rooted culture based on shared values and history. Finding an outside CFO who aligns with and respects this culture is crucial for a successful transition. Starting the recruitment process early allows existing leaders to thoroughly vet candidates and assess their cultural fit through multiple interactions and discussions.
Furthermore, a new CFO will want to know how they can participate in the upside of the business. Be prepared to discuss potential equity participation, such as offering the CFO the opportunity to acquire shares in the company over time. Alternatively, long-term incentive plans can be designed to align the CFO’s interests with the family’s objectives and reward success. By addressing these issues head-on, family businesses can demonstrate their commitment to the new CFO’s long-term success and make the opportunity more attractive to top candidates.
Strategies for Successful Recruitment
To overcome the challenges and ensure a successful recruitment process, family businesses can employ several strategies. First and foremost, it’s essential to gain alignment among family members and key stakeholders regarding the need for an outside CFO and the desired qualities and experience of the ideal candidate. This alignment helps ensure a unified front and reduces potential conflicts during the recruitment process.
Next, develop a comprehensive job description that clearly outlines the responsibilities, expectations and goals for the new CFO. This clarity helps attract the right candidates and sets the stage for a smooth transition. Consider including the family’s values, vision and long-term objectives in the job description to provide context and attract candidates who align with the family’s goals.
When evaluating candidates, consider a range of factors beyond just experience in a family business setting. Focus on identifying a pool of candidates with the right mix of skills, values and leadership qualities that align with the business’ goals and culture. Look for candidates who have experience professionalizing financial operations, supporting business transformations and partnering with CEOs to drive growth. An executive search firm that has experience working with family businesses can help identify high-quality candidates, serve as a buffer and facilitator throughout the interview process and navigate complex family dynamics.
Integrating the New CFO into the Family Business
Once the right outside CFO has been selected, the next crucial step is ensuring a smooth and successful integration into the family business. This process requires careful planning, open communication and a willingness to embrace change from all parties involved.
Establishing a comprehensive onboarding plan is critical. This plan should introduce the new CFO to the company’s history, values and culture, and include meetings with key family members, employees and stakeholders to build relationships and gain insights. Encouraging regular, transparent communication between the new CFO and family members helps build trust, address concerns and ensure alignment on the company’s financial goals and strategy.
During the integration process, it is important for the CEO and family members to empower the new CFO, allowing them to establish their authority and implement their vision for professionalizing the company’s financial operations. This may involve changes to processes, systems and personnel, which can be challenging for long-tenured employees. However, by demonstrating support for the new CFO and encouraging open communication, the CEO and family can help ensure a smooth and successful transition.
A Significant Decision
Bringing an outside CFO into a family business is a significant decision that requires careful consideration, planning and execution. By understanding the unique challenges and opportunities associated with this transition, family businesses can set themselves up for success.
When family businesses take the time to carefully navigate the recruitment and integration process, they open themselves up to new opportunities for growth, financial sophistication, and long-term sustainability. A skilled outside CFO can be a valuable partner to the CEO and family, providing the expertise and leadership needed to transform the business and achieve its full potential.