What happens when my CFO is hospitalized?

September 2007

"My CFO was hospitalized recently with a serious heart problem. He's expected to recover, but in the meantime we have some critical financial and tax filings that he would normally prepare and sign. Even if we found someone else to put together these reports, I doubt if he'd be willing to sign them. Advice?"

Mike: This is why it's always good to have an authorized back-up signer for corporate documents. Your best bet right now is to ask your controller or tax accountant to prepare the filings, and meanwhile have the board grant signing authority to someone appropriate--for instance, a member of the audit committee or even the chairman.

Also (and this may sound morbid), make sure the premiums are current on any key-man insurance you've taken out for your CFO.

Does motivation matter?

September 2007

"I run a small accounting department with five clerical employees who have been here forever. They do their jobs competently, but I can see they're not terribly interested in the business. Is there some way I can get them more engaged? Or does it even matter?"

Mike: Yes, enthusiasm matters, if only for the sake of your morale. Do you really want to spend a large part of every day in dullsville, surrounded by people who believe their work is pointless? I'll bet you don't, and I'll bet your employees don't, either.

You may not be able to get your clerical employees interested in the business itself, but you can certainly get them excited about being part of a team. Take the whole group bowling--I've done that several times, and it's wonderful to watch an introverted bookkeeper scream at getting a strike. Or go roller skating or go-cart racing or square dancing. And be sure to bring a camera and post pictures of the outing on the department bulletin board. You'll see a change in morale almost instantly.

How can I get job security at a startup?

March 2007

"A startup just offered me a job as CFO. It's an attractive opportunity, but I'm worried about what happens if the company runs out of cash. How can I protect myself?"

Mike: Well, you can sign a standard employment contract, but that won't do you much good if the company goes bust. As a practical matter, the CFO is rarely caught by surprise when a company has financial problems. You'll know exactly where the risks are, and you'll be working closely with the founders and board to raise money to keep the business alive.

And if the company does fail, the investors are likely to keep your paycheck coming until the very last moment. The CFO is the person who manages the liquidation process, and investors know this job is really hard to fill.

However--if you're frightened by the question of job security, you probably don't belong in a startup, no matter how "attractive" it seems. Besides the risk of company failure, you'll be in a high-stress position almost constantly. Everyone from the receptionist to the board of directors will expect you to know how the company is doing, how much cash is coming in every day, how many scarce dollars can be spent on critical projects. You'll also spend a lot of time trying to stretch payables (also known as "involuntary vendor financing"), which is certainly not fun. There's a lot of upside to this kind of company, especially if you have an equity position, but the pressure level is not for the faint-hearted.

What talent should I look for in a would-be CFO?

December 2006

"I've begun interviewing candidates for a new controller's position, which I expect will turn into a CFO slot eventually. Besides looking for someone who's 'good with numbers' (obviously), what do you think is the #1 quality I should focus on? I should probably admit that I'm not good at interviewing, so if it's an intangible quality, how do I make sure the candidate isn't snowing me?

Mike: Once you've established that the people you're interviewing have technical competence and high integrity (which should be a given, but isn't always), I suggest you pay a lot of attention to their presentation skills. Presentation skills are often overlooked in the hiring process, but they're hugely important when you're preparing numbers to show to your board, your bankers, and your investors.

And it's easy to test a candidate's competence here in an objective way. Give each of your serious candidates a copy of a recent internal financial report and ask them to put together the kind of summary report they'd present to your board. For extra realism, ask your top candidates to give a dry-run presentation to a financially savvy board member. You'll very quickly see which candidate has the ability you need.

Do I have to replace my CFO?

September 2006

"My CFO is an old and trusted friend who's been with me from the day we opened our doors. But he can get a little cranky, and our new venture firm has been pressuring me to replace him with someone 'more presentable.' I think he's perfectly competent and knows our business intimately, so there's really no rational basis for ousting him. What should I do?"

Mike: Ouch. You've just run headfirst into one of the most painful tasks of running a high-growth company--dealing with employees who haven't grown into their new jobs. I'm pretty sure your investors have spotted a real problem, and they're giving you good advice based on experience with many CFOs.

Being an effective CFO for a high-growth, venture-funded company doesn't depend on "intimate" knowledge of a particular business or industry. The qualities that matter most are the CFO's communication style and presentation skills, along with a solid knowledge of finance, mergers, and the IPO process. You need someone who can get up in front of a bunch of investment bankers and blow their socks off. That doesn't sound like your friend.

You may find that your current CFO already understands that he's not ready for prime time, and he may welcome being replaced (especially if he walks away with some serious cash or options). Another possibility is that he could stick around as your controller--provided there are no ego conflicts and your soon-to-be-hired new CFO thinks this is acceptable.