Startup - What Does A CFO Do And Do You Need One Now
As a founder, you are constantly busy running your company, making sales, meeting investors, carrying out marketing plans. Your tasks never end. However, if you want to scale faster, you may need a CFO to help you. Many startup founders don’t learn the importance of having a CFO until the later stages of their company, and miss out many of the early benefits of having a CFO. Having an experienced CFO early on is proven to be cost effective.
An experienced CFO is able to help you successfully move your business from early stage to scaling stage. Citing the Wall Street Journal, out of 180 unicorn startups, of those that scaled from zero to valuations exceeding $1 billion, 71% had CFOs. This is not a coincidence. CFOs play a major role in leading a startup to success. So, what does a startup CFO do?
CFOs review the company’s past performance, examine current conditions, and evaluate future opportunities.
CFOs are best positioned to lead financial reporting and tax filings. These two tasks require deep understanding of the company’s past performance, and CFOs know the financials of the company from the ground up. They can spot and correct mistakes on the financial reporting and tax calculations to benefit the company and stay in compliance.
Glancing at the current performance, an experienced CFO can monitor the runway and burn rate of the startup, build relationships with banks, design work flows for the accounting and finance department, and mostly importantly, ensure the best use of cash to get the startup to where it needs to be.
Looking into the future, a CFO sets up plans to forecast revenue and budget expenses. There are actually not many guessing games when it comes to forecast and budget. An experienced CFO looks at the historical data, and understands and identifies trends over time, planning ahead for the future.
On top of these skills, CFOs can often help with fundraising. They can help founders strategize their fund-raising campaign and pitching process. Because of the importance of these tasks, CFO is a critical role that work closely with the founders to make strategic decisions.
Qualifications of an experienced CFO: CPA license, full business cycle experience, and technology savviness.
CFOs with these three qualifications are highly desirable and, of course, more costly. The tradeoff here is that an experienced CFO can help you avoid mistakes and stay on the right track from the start.
· Indirectly saving money: only CPAs can legally sign off on financial statements.
If your CFO also happens to be a CPA, they can sign off on the financial statements for your company. Many institutions such as banks, government entities or investors require CPA-signed financial statements before they will grant you a loan or license. It is very costly to hire a CPA or CPA firm on the spot just to get the signed off financial statements. The price you will pay can range from$8K to well above $20K. CPAs can’t sign off on any financial statements unless they have audited those statements to verify all the details. But if your CFO is a CPA, they already know all the details of the financial statements and can guarantee the actuality of the numbers, so you don’t need to find an external firm to do the work. This saves time and money.
· Full business cycle experience: less time researching and more time applying knowledge.
An experienced CFO has already seen the ups and downs, and the one-off situations that could happen to your business. They know how to get you out of a bad situation. If you think hiring an experienced CFO is too expensive, think twice. An inexperienced CFO needs more training, more time to research and learn tasks, and very possibly needs additional help to get the work done. These things all cost time and money. An experienced CFO knows the right way to get things done based on their past experience, so you don’t have to wait for them to learn the skills on the spot.
The time to hire a CFO is when you feel that you need to take back control of your company.
It never feels like the perfect time to hire a CFO, however, if you feel that you are losing control of the finances or accounting of the company, then it is time.
· Hiring a full time CFO: minimum of $10K/month.
According to ZipRecruiter, for small to medium sized businesses, the average annual salary for CFO positions ranges from $116K to $158K, and this number doesn’t include benefits, bonus, commission, and profit sharing. This means that to hire a full time CFO, you will pay more than $10K a month.
· Hiring a part time CFO is a cost-effective alternative.
Many startups hire part time CFO before they can afford to hire a full time CFO. For early stage startups, you don’t need a full time CFO yet, however you do need a CFO’s expertise to set things right from the get-go and solve hard problems when no one else knows how. A part time CFO is usually significantly cheaper, and you can add additional services only as needed. This could be an alternative prior to hiring a full time CFO.
The characteristics you want from a CFO: resourceful and provide constructive feedback.
Being resourceful and providing constructive feedback are among the most important characteristics a CFO should have. To quote Ray Dalio, one of the greatest investors alive: “Triangulate your view with believable people who are willing to disagree.” Dalio also teaches us that “pain + reflection = growth.” A CFO who is resourceful can find the missing pieces of the puzzle and solve the problems at hand; a CFO who provides constructive feedback can help the team and founders improve and learn. No pain, no gain. Only through the uncomfortable process of learning and correcting can you keep the startup growing.
Takeaways:
In summary, an experienced CFO understands your business’s past performance, present condition, and future potential. They have the right knowledge and tools to monitor cash flow, set forecasts, control budgets, review tax filings, and help with fundraising. A good CFO is someone you trust and can have meaningful discussions with that lead to learning and growth for the whole team. A great CFO is like the right hand of the CEO, an indispensable asset in executing the founder’s vision. Adding a CFO to your team early on can help you avoid mistakes and will pay for itself in the long run.
