What is the difference between a controller and a CFO? Which does my business need? Do we need both?
If you are asking those questions, give yourself a pat on the back. It means you've grown your business to a new level. But it also probably means you're experiencing some pain.
Your financial reporting may be slow or inaccurate. You may be seeking new funding. You may be facing a cash crisis. You may need help deciding which metrics matter most and how to track them.
There are many reasons small business owners consider beefing up their finance team. Whatever your reasons, we're glad you're thinking about it, because, from our experience, most owners wait too long to get help.
It is quite possible that you've seen other businesses with CFOs and controllers who have the exact same responsibilities. This can make things confusing. Hopefully, by the time you're done reading this post, you'll have a clear understanding of what these roles typically cover, where they sometimes overlap, and how you can plan out the makeup of your finance team.
Controller vs. CFO: Definitions
The easiest place to start in a controller vs. CFO comparison is to give you a description of each role.
Here is how Tech Target describes describes a controller:
A financial controller is a senior-level executive who acts as the head of accounting, and oversees the preparation of financial reports, such as balance sheets and income statements. In addition to preparing reports, the controller's responsibilities may also include compliance audits, monitoring internal controls, participating in the budgeting process and analyzing financial data to varying degrees. At some companies, financial controllers are involved in evaluating and selecting technology for use within the finance department or other related departments within the organization.
Here is how Investopedia describes a CFO:
A chief financial officer (CFO) is the senior executive responsible for managing the financial actions of a company. The CFO's duties include tracking cash flow and financial planning as well as analyzing the company's financial strengths and weaknesses and proposing corrective actions. The CFO is similar to a treasurer or controller because he is responsible for managing the finance and accounting divisions and for ensuring that the company’s financial reports are accurate and completed in a timely manner.
As you can see, there is a lot of overlap in these descriptions. So, as you might imagine, there are many small businesses which have a controller or a CFO, but not both.
To simplify the major difference, a CFO will often be involved in fundraising and finance strategy, whereas a controller's responsibilities usually stop at ensuring accurate reporting.
When a Company Might Need a Controller
To give you a little more insight, here are some situations which prompt small business owners to hire a controller.
- Supervision of bookkeeper. If the company doesn't have a CFO and the owner doesn't have time or can't monitor bookkeeping, the solution is often a controller.
- Accuracy of financial reports. Sometimes bookkeepers aren't able to identify the root cause of inaccurate numbers or develop a solution to remedy the situation.
- Fixing the period close process and report delivery. It is not uncommon for bookkeepers to have trouble completing the financial close process on time (often in the range of weeks or months). Though many close quarterly or even annually, small businesses should close monthly to take advantage of real-time data.
- Preventing errors, fraud, and security breaches. A bookkeeper does not have the training and skills necessary to implement these kinds of internal controls.
- Better support of CPA. Bookkeepers generally have limited ability to supply a CPA with adequate assistance during tax season or during an audit.
- Ownership of accounting process. As a business grows, the complexity of accounting processes grows along with it. Bookkeepers are often not experienced enough to take ownership of these processes and make adjustments where needed.
When a Company Might Need a CFO
Here are some situations which often prompt small business owners to hire a CFO in addition to or instead of a controller.
- Supervision of finance team. Like any department, the finance staff (eg: bookkeeper and/or controller) requires guidance and oversight. If the owner doesn't have time or can't monitor the team's peformance, the best solution is often a CFO.
- Need for sophisticated reporting and interpretation. It is often said that when a non-financially-minded person sees numbers, numbers are all that person sees. But when a financially-minded person sees numbers, that person sees the story behind the numbers. CEOs, controllers, and bookkeepers may not be financially savvy enough to determine which metrics matter most and what those numbers mean. This is typically the "wheelhouse" of the CFO. A top-notch CFO can find and interpret the numbers (such as financial metrics for SaaS companies) and decide which actions to take to leverage them to drive positive impact.
- Financial strategy and direction guidance. A business owner may need help with financial strategy such as pricing decisions, long-term projections or strategy formulation/refinement. The CFO becomes part of the executive team and participates in - and often leads - important planning sessions.
- Stakeholder report package generation and interaction. Boards, banks, and investors will need to see reliable data packaged in an attractive and useful manner. CFOs are often called on to prepare these materials. Check out our article on how well-designed board meeting packets lead to productive board meetings for more on this subject.
- Fundraising assistance. If the CEO can’t take the lead on building and telling the financial story required in fundraising, a CFO is often asked to join the team to support these efforts and round out the C-level expertise of the company.
An Outsourced Solution?
At Driven Insights, we have clients who take advantage of Controller and/or CFO services depending on their specific needs. You can see how those services are structured in the graphic below.
What Size Companies Bring in Controllers?
We often see commonalities with controller roles based on the annual revenue of the company.
While some companies benefit from a fractional controller starting at $500K to $1MM, almost all companies have a controller by the time they reach $10MM in annual revenue.
At $1MM, the controller is likely doing some of the harder transactions for a bookkeeper (playing “down” in the role), serving as a sounding board for the bookkeeper, and overseeing basic reporting and processes. If there is no CFO, he/she is often the financial advisor for the CEO (playing “up” in the role) by interpreting financial reports and sounding warnings.
By $10MM, the controller is more involved with managing internal controls, closing processes and report generation, as these tasks are more intensive and time-consuming than in smaller companies. At this size, there are many more moving parts in the accounting function, so the role is that of a classic controller.
What Size Companies Bring in CFOs?
Generally speaking, $1MM in annual revenue is a minimum threshold to bring in a part-time CFO or contract CFO services, but some $500K businesses benefit as well. The common factor for those $500K companies is that they’re hungry to get and use financial insights.
Your company will typically want to consider moving from part-time or outsourced CFO services to an in-house CFO at around $50MM in annual revenue. Some investor-backed companies, such as Software as a Service (SaaS) businesses, have more sophisticated needs than other companies with the same annual revenue. That sophistication means the business may need contract CFO services at $500K, rather than $1MM, and could hire a full-time CFO at around $35MM, rather than $50MM.
Controller vs. CFO Salaries
According to CFO.com, the average cash compensation for a CFO in a private company with less than $20MM in annual revenue is $194,354. CFOs for private companies with $21-$99MM in annual revenue make an average of $237,983 in base salary. (Private company CFOs make 45% less than those at public companies.) Tack on benefits and bonus and you can expect to pay $225,000 to $275,000 depending on business size.
According to PayScale.com, the median compensation package for a small business controller is $80,296. The complete range of salaries varies from $50,500 to $133,400 with influencing factors including company size and location.
If those numbers make you nervous, keep in mind that there are alternatives to in-house controllers and CFOs. You can save up to hundreds of thousands of dollars by engaging with an outsourced finance department provider. You can find a more detailed analysis of the cost of outsourced solutions in How Much Do Part-Time CFO Services Cost in 2018?
Controller Responsibilities Vary by Industry
We often see that the role of a controller changes by industry.
For example, project-based businesses like general contractors might have a controller support the purchasing process to keep expenses in line and establish reporting to enable job/project profitability monitoring.
A recurring revenue business, like SaaS or other subscription billing companies, would rely on a controller to monitor more sophisticated subscription billing metrics that ensure the unit economics are sound and provide transparency into revenue composition (such as churn).
Controllers in very low-margin businesses like commodity contract or product manufacturers are involved in managing the razor-thin margins to ensure the sustainability of the organization.
The role of CFOs tends to be consistent no matter the industry. But we we do tend to see CFOs earlier and more often in some industries, such as tech companies with a lot of investor money at stake and where rapid growth is expected.
The Qualifications of Great Controllers & CFOs
As an outsourced finance department provider, we recruit controllers quite often. If you decide to hire a controller and/or CFO, we can help with some resources. In addition to the qualifications listed below, see our post 5 Questions Every Owner Should Ask Their Controller and The Average CFO Salary (2018) + 28 Key CFO Interview Questions (coming soon).
Qualifications of both controllers and CFOs:
- Someone who can grow with you. This person has meaningful experience in your industry and in a company at your present and future growth stages.
- Someone who can show readily consumable (visual) and useful reports (w/sensitive data redacted).
- Someone who can demonstrate evidence that they have materially and positively influenced the CEO's decision-making through identifying, interpreting, and evolving key metrics.
Qualifications specific to controllers:
- Someone with experience supervising multiple bookkeepers at the same time.
- Someone who can demonstrate evidence that they can play "up" or "down" in the role to handle some of the responsibilities of a CFO or bookkeeper.
- Someone who can talk through processes they’ve established or managed clearly. For instance, the monthly close process should be documented and comprehensive. Feel free to ask for a target close date of each monthly close and the last time the controller missed that date. Bonus points for evidence that the prospect has reduced the closing timeline.
Qualifications specific to CFOs:
- Someone who can demonstrate skillful oversight of a finance team.
- Someone who can show evidence that they can play “down” to the controller role. Look for some of the qualifications listed above.
- Someone who is capable of establishing great chemistry with the owner.
- Someone with great war stories. Ask for the financial performance of all companies for which the candidate has managed the finance team. Hopefully, these are all great stories, but bad stories should have logical, believable, explanations for the underperformance.
One of the qualifications we mentioned above which is common to CFOs and controllers is the ability to show visually appealing and useful reports. We can show you what some great reports look like.