In the architecture and design profession, a chief financial officer (CFO) can seem a strange outsider—a stiff, striped suit in a closet of black sweaters, a calculator among colored pencils. But a CFO can be as important to a firm as its design principals. Financial advisers who work regularly with architecture and engineering firms say that a CFO can help a growing firm succeed, and a successful firm stay on top. Here’s how to know when and why your firm needs one.
What a CFO Does
By studying the firm's finances and financial records, the CFO engages in short- and long-term planning of everything from capital expenditure to market opportunities and building out strategic goal forecasts . The CFO knows where all the money is and, as both a financial adviser and business partner, decides how best to use it.
“A CFO is responsible for the financial reporting and the financial soundness of the firm," says Mark Goodale, principal of the Boston-based management consulting firm Morrissey Goodale. "They accomplish that through the effective development and deployment of strategies in the areas of cash flow, liquidity, return on equity, profitability and capitalization, the management of banking relationships, tax management, and the preparation of financial statements.”
Deciding When to Hire
There’s no precise moment when a firm will absolutely need a CFO, but the decision often correlates with either the size of the firm of its revenue. Most small firms can probably get by with a bookkeeper, but as a firm grows in personnel and project and business volume, it will likely need a proper in-house accountant to handle the payroll, billing, and accounts. When financial needs of a firm expand to the point of requiring a whole staff, a CFO can be a leader needed to both manage your firm's money and think strategically about it.
Estimates range, but a general rule of thumb is that once a firm gets to be about 75 or 100 people, or brings in around $25 million of revenue, a CFO would be beneficial. According to John Doehring, executive leader of advisory services and training at the financial advisory firm PSMJ, in Newton, Mass., this is the threshold where firms should consider introducing someone "who can sit at the principal-level table, and not only help with the books, but also with strategy on building forecasts and growth.”
A good CFO can think small and large, focusing on the minutiae of financial reporting as well as business growth and strategic development in the distant horizon. Most will be certified public accountants, have an MBA, or both. But neither is necessary so long as the person has enough experience, according to Mary Anne McKernie, a financial staff recruiter at the management advisory firm Strogoff Consulting, in Mill Valley, Calif. And while experience is important, McKernie suggests that architecture firms look for CFOs with specific experience in the professional services. “They don’t have to be familiar with architecture, but they should understand how professional service firms work, because it’s very different than if you’re a CFO of a firm that manufactures widgets,” she says.
Qualities to Look For
Given their interdisciplinary and creative nature, architecture firms should try to find a CFO who understands that designers are typically more interested in design than in running a business. “You’ve got to find somebody with not only the financial and business acumen, but the kind of diplomacy and personality that’s going to mesh and actually create value for the firm, and not daily battles,” Goodale says.
And because it’s a C-level position, the CFO should be someone the firm can trust to guide the business—and keep it safe. “It’s one of the few jobs in a corporation where somebody can steal the money,” Doehring says. “It does happen now and again, unfortunately.”
In the best of circumstances, a CFO can be transformational for an architecture firm. After operating more than 50 years, Charleston, S.C.–based architecture firm LS3P hired its first CFO in July 2016. President and CEO Thompson Penney, FAIA, credits a financially conservative approach for the firm’s longevity and stability. But steady growth in recent years—including five separate mergers since 1999—called for a new approach. “We weren’t leveraging our capital as well as we should have,” he says. While the firm’s fiscal conservatism is still a guiding principle, its CFO is taking a wider view of the firm's potential for growth and new business opportunities. “He’s got a strategic view,” Penney says. “He’s trying to figure out how we can do things better.”