4 Ways an Outside Financial Hire Can Strengthen a Family Business

By Scott Beaver.

During times of resiliency, family-owned businesses often have an advantage which is not as apparent during times of rapid-growth. Your typical family can be brought closer together in troubling times and have the support of loved ones around them. This is true for family-owned businesses, too.

Their strong cultures inspire confidence among employees inside the business to rally around common objectives and build trust with consumers outside the business to help standardize sales. They have an innate ability to prioritize cash preservation, focus on employee well-being, and garner local community support.

Employees within family businesses often “wear many hats” and have various roles within the organization. When the business reaches a certain size, employees may be stretched thin, skills gaps become apparent, and mistakes happen. At this stage, business owners may find their team lacks the ability to standardize processes, design and execute growth strategies, and ensure systems are compliant and optimized – especially as it relates to finance.

Faced with these challenges and ongoing economic volatility, it may be time to recommend a financial leadership hire for your family business clients. Even though they may appear optimistic about weathering hard times, hiring an external executive for the role of CFO or controller can help family businesses by providing an outside perspective and modernizing the business.

Here’s how:

Development and implementation of sustainable financial processes

Sometimes family businesses hit the ground running without established processes. Even when there are foundational processes, employees may disregard them in favor of convenience when business is busy. A lack of process produces inefficiencies, and in the realm of finance this can also lead to wasted money and missed revenue opportunities

A new financial hire can help improve and enforce processes that align to business objectives, streamline operations, and support long-term sustainability and growth. Over time businesses may shift or expand business models, for example selling to new markets, establishing an online storefront, or expanding product lines. During these periods of growth, a financial executive can also help create new processes and ensure proper segmentation to successfully analyze profits.

Evaluation of suitable business metrics and KPIs
As a business matures, it’s also important to evaluate and adjust relevant key performance indicators (KPIs). A financial executive can provide insight based on macroeconomic indicators to ensure KPIs reflect the realities of the current business environment and customer demand.

With a dedicated focus on operations, it can be easy for family businesses to overlook macroeconomic indicators that directly impact cash flow and revenue potential. For example, a business may see a decrease in sales due to customers having less disposable income amid inflation pressures. As supply chain disruptions continue, it’s also important for businesses to forecast costs including stockpile storage, inventory insurance, and the impact of potential delays or shortages. The cost of labor is also critical to maintain operations, and in an increasingly competitive job market businesses must provide competitive wages and benefits.

Revenue is the most common performance indicator for businesses, but this only provides a rearview analysis. A financial executive can help a business analyze real-time indicators like revenue per new client, and ensure metrics align across business functions to meet financial goals.

Technology optimization and system implementation
According to PWC, only 42 percent of family businesses have strong digital capabilities and only one-third have developed a clear roadmap for expanding the use of technology. While family businesses may already invest in technology to support business operations, sometimes these systems can be difficult to use or too time consuming to maintain. Instead, businesses will continue to rely on manual processes including spreadsheets, handwritten notes, and printed documents that create inefficiency and limit scale.

A financial executive can help evaluate the cost of current systems and advocate for simplifying a business’ technology stack. Given industry experience, a financial executive may offer recommendations on cloud services or integrated businesses systems that are easy to use and can simplify businesses processes. With a financial executive overseeing technology spend, a business can ensure investments are helping to increase both productivity and profitability.

Ensuring governance, risk, and compliance protocols

Due to limited internal security and financial controls, family businesses can face serious risks of embezzlement and fraud that can result in IRS and legal repercussions. A CFO or controller can help establish controls, including requiring multiple signatures for significant transactions and separation of responsibilities for tasks including bookkeeping, deposits, reporting, and audits.

Technology such as an enterprise resource planning (ERP) system can help prevent unauthorized transactions by enforcing a strict approval mechanism with enhanced security controls. An ERP can also help ensure reporting accuracy by automating accounting operations such as accounts receivable, accounts payable, and cash management.

As family businesses grow, it’s important to consider a financial executive that is not a member of the family to guide the path toward long-term, sustainable growth. While a new hire may be intimidating, a CFO or controller can provide valuable industry and financial expertise especially during economic volatility. A financial leader can help a family business spend more efficiently, remain agile, and bolster the bottom line to adapt and thrive.

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Scott Beaver is senior product marketing manager at Oracle NetSuite.