Dealer Insights - May-June 2015 - Is it time to hire a CFO or controller?
When dealerships grow to a certain size, their owners often face an important decision about oversight of the financial side of the business: Should they hire a high-level financial executive to oversee the dealership's finances?
There is no one-size-fits-all answer to this question, as many factors beyond size go into the decision. Yet expanding dealerships should regularly and carefully consider the possibility of hiring either a CFO or a controller.
Strategic financial direction
As mentioned, dealerships usually need to reach a minimum size before it's financially feasible for them to hire a financial exec. Generally, there are two thresholds in play:
- Having revenues of around $75 million or operating multiple smaller stores means you may be ready to hire a controller.
- Having revenues of around $300 million while running multiple locations could indicate it's time to hire a CFO.
If your dealership has already met one of these thresholds, or soon will, consider the potential benefits of hiring a financial executive. Perhaps the biggest is the ability of this kind of professional to bring a higher level of strategic and analytical skills to the financial management of your dealership that go beyond just basic number-crunching.
A CFO or controller can provide strategic financial direction for your dealership. Doing so includes looking beyond day-to-day financial management to more holistic, big-picture financial and operational planning. He or she will take a seat at the executive table and serve as the owner's go-to person for all matters related to dealership finances and operations.
Roles and responsibilities
A CFO or controller will be able to go beyond merely compiling financial data to providing an interpretation of the data that demonstrates how financial decisions will impact all areas of the dealership. He or she also will be able to demonstrate how improved data interpretation can help lead to better management and operational decisions. And this person can plan capital acquisition strategies so your dealership has access to financing as needed to meet working capital and operating expenses.
In addition, a CFO or controller will serve as the primary liaison between your dealership and its bank to ensure your financial statements meet the bank's requirements and help negotiate any loans needed. Analyzing possible merger and acquisition and other expansion opportunities also falls within a CFO's or controller's purview.
The specific roles and responsibilities of a dealership CFO or controller usually include the following:
- Making sure adequate internal controls are in place to help safeguard the dealership from internal fraud and embezzlement,
- Performing ratio analysis and comparing the dealership's financial performance to benchmarks established by similar-size dealerships in the same geographic area,
- Determining whether it would be beneficial for the dealership to perform a cost segregation study and, if so, spearheading this effort,
- Bringing the financial operations of multiple franchise locations together and looking for ways the dealership can benefit from economies of scale, and
- Implementing improved cash management practices that will boost the dealership's cash flow and improve budgeting and cash forecasting.
A CFO or controller also can analyze the tax and cash flow implications of different capital acquisition strategies — for example, leasing vs. buying equipment and real estate.
A major commitment
Hiring a full-time CFO or controller represents a major commitment in both money and time. This executive will likely command a six-figure salary and an attractive benefits package, so first make sure your dealership has the financial resources to support this level of compensation. If you hire a CFO or controller before your dealership can afford it, your profitability will likely suffer.
Bringing in a financial exec also will require a time commitment on the part of ownership and the existing management team. They'll have to bring the CFO or controller up to speed on all aspects of the dealership's finances and operations. If this training doesn't go well, or the new exec isn't granted enough decision-making authority afterward, he or she could become bored and leave your employ — wasting your efforts and disrupting the business.
Care and caution
Take great care and caution in making this decision. Hiring a CFO or controller at the right time can pay big dividends for your dealership — but doing so at the wrong time can be costly.
Sidebar: And if you're stuck in between…
Your dealership might find itself stuck in the middle: not quite big enough to afford a full-time CFO or controller, but too big for your office manager or bookkeeper to continue managing the finances.
In this instance, your CPA may be able to work with your existing financial staff to provide oversight of the financial and accounting functions and strategic expertise on an outsourced basis. This way, you'll receive the high-level financial and operational know-how you need without having to pay the high salary and other overhead required for an executive position — an efficient and cost-effective solution.
Dealer Insights - May/June 2015