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What is a Turnaround CFO and When Do You Need One?

Much like a skilled captain who can easily navigate a storm at sea, a turnaround CFO can steer a struggling business back toward peaceful waters. These financial professionals guide internal decision-making and leverage industry-specific expertise to deliver actionable strategies that can bolster future financial success. 

In short, a turnaround CFO is a specific type of financial leader. They come in during times of crisis to assess, diagnose, and treat a company’s financial problems. Much like our skilled sea captain at peace in the heart of a storm, a turnaround CFO’s expertise and strength lie in navigating the complexities of troubled business operations. 
But there’s more to a turnaround CFO than just crisis management. Understanding what the role entails, when you might need one, and how to hire the right candidate can be critical for your business when markets sour or internal decisions set your ship off course.

Here at G-Squared Partners, we’ve worked with hundreds of companies, offering a wide range of financial services from outsourced accounting and bookkeeping to more advanced financial guidance through our outsourced CFO services. Whether you need strategic guidance during a turnaround or need a CFO's expertise on a fractional basis, G-Squared Partners has solutions designed for you. Schedule a call today to learn more.

What is a Turnaround CFO?

Each year, around 600,000 businesses shutter. While, in some situations, nothing can be done to pull an organization out of a downtrend, in many instances, the skilled hand of a turnaround CFO can prove invaluable for restoring financial health.

Turnaround CFOs are financial experts with specialized skills in navigating a business through times of distress. They bring a unique blend of strategic vision, analytical rigor, and decisive action. There are two main types of turnaround CFOs to understand and each will focus on different stages of financial difficulty:

  • Performance Enhancement CFO: when a company is financially stable but underperforming or not reaching its full profit potential, a performance enhancement CFO can identify inefficiencies while streamlining costs and improving profitability and cash flow.

  • Crisis Management CFO: when a company faces insolvency or severe financial distress, potentially on the brink of bankruptcy, a crisis management CFO is the right choice. They make the tough calls and prioritize immediate action to preserve liquidity.

What differentiates these two categories is urgency, scope, and risk tolerance. For example, a crisis management CFO must take swift action to prevent collapse and address broader issues. In contrast, a performance enhancement CFO might take less risky yet performative steps to improve specific business areas.

When Might a Business Need a Turnaround CFO?

While every business faces unique challenges, several red flags often signal the need for a turnaround CFO:

  • Declining Profits or Increasing Losses: this is often the most obvious indicator, especially when trends persist despite efforts to cut losses or boost sales.

  • Cash Flow Problems: these can include difficulty meeting payroll, paying vendors on time, or servicing debt obligations, which can quickly spiral into a crisis.

  • Operational Inefficiencies: from bloated costs and redundant processes to a lack of accountability, these can quickly drain a company’s resources.

  • Missed Financial Projections: This can be repeatedly falling short of financial targets or relying on inaccurate data, suggesting deeper issues.

  • Strained Relationships with Lenders and Investors: late payments, covenant breaches, or lack of transparency can erode trust and limit access to capital.

What do these red flags look like in reality? Let’s consider a scenario where a CFO could help improve performance. A manufacturing company is seeing weakening gross margins despite growing sales. In this case, a turnaround CFO might dig into the data to reveal that certain products and customers are underperforming. 

Let’s take another example we’ve seen relatively frequently, in both public and private markets, where a company rapidly expanded during the pandemic and hired aggressively to meet demand. When demand normalized, they were left with a bloated workforce and insufficient revenue to support their operational costs. In this instance, a turnaround CFO could come in to help the company stem the flow, plug its operational gaps, and build for a better future. 

All these examples and warning signs underscore a crucial point: financial distress can manifest in various ways, often stemming from operational inefficiencies, poor decision-making, or unforeseen external events.

A turnaround CFO is trained in identifying the root causes of these problems and can develop strategies to stabilize and restore a company's financial health. While it can seem like a challenging cost to hire a turnaround CFO, oftentimes, it’s the essential first step toward recovery. 

Finding a Great Turnaround CFO

A turnaround CFO can be the key to improvement if your business is struggling. But, the right financial partner matters. A successful turnaround requires a unique blend of skills, experience, and personality traits. Let’s break down a few must-have qualities for a successful turnaround CFO.

First is experience. Seasoned turnaround CFOs tend to have a “been there, done that” mentality. A quality partner will come with a proven track record in similar situations. This allows them to anticipate challenges, navigate complex negotiations, and make informed decisions under pressure. More importantly, they’ll know when to play offense and when to play defense. This means that they know when to push for aggressive changes and when to prioritize stability and damage control. 

Of course, experience is only one factor to consider. Here are a few more qualities to keep in mind:

  • Decisiveness: a good CFO isn’t afraid to get tough. From difficult staffing decisions to debt restructuring, a strong turnaround CFO won’t shy away from challenges.

  • Objectivity: turnaround CFOs are often brought in from outside the company. They usually provide an objective view unclouded by internal politics or emotional attachment.

  • Communication and Negotiation: strong communication and negotiation skills are essential as the right CFO will build relationships with key stakeholders, facilitate open communication, and find mutually agreeable solutions even in contentious situations.

  • Financial Acumen: the proper turnaround CFO must have a firm grasp of financial analysis, cash flow management, and restructuring strategies to develop and implement effective plans.

While these are traits of a successful turnaround CFO, consider the factors that make a good leader. The right CFO for your organization will bring integrity to your business, adapt to dynamic situations, and operate with a results-oriented approach to achieving improvements. By carefully evaluating these factors and asking the right questions, companies can find a turnaround CFO who fits their specific situation and needs. 

G-Squared Partners: Experienced Turnaround CFOs

In the face of financial turmoil, a turnaround CFO can provide a lifeline to a struggling business. With their unique expertise in taking decisive action and ability to navigate complex challenges, they can work with a company to develop a recovery plan to pull them away from ruin.

While the road to recovery is never easy, with the right turnaround CFO at the helm, businesses can weather the storm, emerge stronger, and chart a course toward sustained growth and profitability. But remember, seeking help early is key.
If your business is showing signs of financial distress, don’t hesitate to get in touch with our team of financial experts at G-Squared Partners.

Our experienced turnaround CFOs have a proven track record of helping companies overcome challenges and achieve lasting success. Contact G-Squared Partners today to schedule a consultation and learn how we can help your business navigate financial difficulties and thrive.