For Steven Peskaitis, the handwriting was on the wall: No CFO, no IPO.
Mr. Peskaitis, president and CEO of Chicago Map Corp., knew a chief financial officer was a must for the Downers Grove company's upcoming initial public offering. But getting someone on board was going to be difficult. Chicago Map, which does several million dollars annually in sales, could not offer the salary CFOs command at larger corporations.
However, the firm did have one thing going for it: huge potential, which was about to be unleashed. Mr. Peskaitis used a combination of stock options, competitive salary and benefits three months ago to lure John McLane, a veteran CFO who took early retirement from a large electronics company. The attraction: the challenge of growing a small company into a major player.
``It's hard to match larger companies, but what we were offering was to be part of something that you could not be part of at a larger company. Sometimes people get to a point that it's not just about salary,'' Mr. Peskaitis says.
A CFO improves professional management and lays down the law about running a fiscally sound operation. Not every small company needs one; a firm growing at a steady but unspectacular pace can make do with a controller or bookkeeper. But a firm that's about to boom or is looking to professional investors or public markets ought to consider adding this position.
A CFO does more than crunch numbers. Duties include raising capital and presenting a company to the investment community. Inside the company, a CFO can play ``bad cop'' to the CEO's ``good cop.'' The founding entrepreneur may whip up excitement, while the CFO provides assurance to investors that the company is on solid financial ground.
CFOs not only keep control over finances, but they also guide the company head in making financial decisions. In a small business, that could mean the CFO acts as a buffer between family and friends, who frequently are start-up investors or help run the business.
There's no magic formula that says exactly when a CFO is needed, but Randall Tavierne, industry leader for the entrepreneurial services manufacturing practice and a partner at the Chicago office of Ernst & Young LLP, says strategy is the deciding factor.
``It goes to the company's vision of growth and where they see themselves in five years. If they are really looking to expand the business, go to the equity market, go to debt markets, or go international -- that's when they need to start thinking about a CFO,'' Mr. Tavierne says.
``He's got to invite big money in, and the stature of the man who does it is important,'' says Maurice Nagle, a counselor with the U.S. Small Business Administration's Service Corps of Retired Executives in Chicago.
Mr. Nagle suggests hiring someone who knows the industry and has extensive contacts among bankers and investors.
$10-million mark
Loop-based U.S. RealTel Inc., which subleases rooftops (for antennas) to telecommunications companies, began generating revenues this year. So far, 1999 sales total less than $5 million, but CEO Perry Ruda expects that to double by yearend.
U.S. RealTel hired John Glass as CFO in March, after it went public last year but before revenue really started coming in. ``Had we not done it, it would have been a gross error. If we were to say to the investment community that we are growing this huge company without a dedicated person as our CFO to watch the finances, we would not get very far,'' Mr. Ruda says.
Though sales volume should not solely determine whether to hire a CFO, Mr. Tavierne says companies generating more than $10 million in annual revenues ought to think about it.
For KnowledgeCircles.com Inc., a Schaumburg-based company that organizes Web-based knowledge forums, the question was not whether to hire a CFO, but when.
The company opened in January and is eyeing an initial public offering in two to three years. Heeding colleagues' advice, founders Melissa Giovagnoli and Michael Kuhlman decided that the best way to position themselves to go public was to have a CFO on board from day one.
Two months into the company's life, the founders contracted with a New York-based banking veteran to handle CFO duties. Terms include a small percentage of the company, with the possibility to increase it based on performance. They are now looking for corporate sponsorships, angel investors and venture capital through their finance chief's contacts.
``The Internet is moving fast, and therefore, you want to do things right from the get-go. Part of raising capital is having a solid management team. That's what investors are looking at: It's not so much the ideas, but the management team,'' Mr. Kuhlman says.
Aside from experience and certification in accounting, a good CFO needs qualities that don't show up on a resume.
Because CFOs usually are responsible for interviews with potential investors and roadshows to sell the company, excellent written and oral communication skills are essential. A good command of technology and how it's used to run a business is also crucial, particularly with the growing popularity of e-commerce and the Internet.
CFOs not cheap
CFOs need to fit with the company, but they shouldn't have to win a popularity contest. Since many gut-wrenching decisions are driven by the bottom line, CFOs need to have the gumption to make them, even when they might include tough calls -- layoffs, restructuring or divesting product lines.
Of course, a good finance guru doesn't come cheap. California-based staffing and workplace consulting firm Robert Half International Inc. estimates that companies with less than $50 million in annual sales pay their CFOs $67,750 to $92,000 this year, up 3.1% from 1998 rates.
Those figures may sound discouraging to a small business, but innovative compensation packages and an emphasis on a startup's potential can put a CFO within reach.
``There is a way to get a CFO. There are a lot of great people out there who are looking. You can negotiate today in a way you never could before,'' Ms. Giovagnoli says.
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