As your startup takes off, you might wonder if you’ll need an extra brain for all things finances — and more often than not, the answer is yes. Making your startup vision a tangible reality goes hand in hand with financial management, investments, and financial strategies. A Chief Financial Officer (CFO) can help you by managing your startup’s financial present and future.
While you lay the groundwork for your product or service, your CFO does the same for your startup’s financial health. Let’s look at the importance of CFOs and how to determine if they are the right fit for you.
Understanding Where CFOs Fit the Bill
A US Bank study found that 82% of businesses fail because of poor cash flow management. While many new CEOs believe their entrepreneurial prowess is enough to keep an emerging business afloat, rookie financial mistakes can sink your efforts.
A modern CFO should be more than a bookkeeper, though. They’re your startup’s financial strategist and treasurer in charge of projecting revenue generation and creating contingency plans. Often, they’ll also lend funding advice and help standardize compliance and control processes.
But when should you hire a CFO? This decision depends on whether you have enough financial experience and knowledge to hold the fort alone in the early stages or if you are immediately after an experienced right hand.
Remember that CFOs are also a financial investment, which seems contradictory. If costs concern you but building financial stability with a CFO is just as important, a fractional or part-time CFO can do the trick temporarily. These provisional CFOs have been building a gig economy around startups by offering their services on a project basis, helping founders save costs while getting financial advice.
Many startups wait until their first venture capital (VC) funding round or once the company generates a specific annual revenue before hiring a CFO. However, if managing your burn rate, available runway, and annual recurring revenue isn’t your cup of tea — but your budget can stomach it — hire a CFO sooner rather than later.
Qualities All Top-Notch CFOs Possess
Lately, demand for CFOs is hot: a volatile market, inflation, and a possible downturn have triggered a demand increase. Companies are looking to retain CFOs during this period while the market stabilizes, as undoubtedly, they can help mitigate the effects of slowdowns with their strategic expertise.
To get you through hardships and scale your business, a CFO must be dependable, communicative, highly analytical, and detail-oriented without losing sight of the bigger picture.
As well as these general traits, a well-suited financial executive must:
- Be tenured in the field: It’s essential that whoever puts on the CFO cap has been in Corporate Finance for at least ten years. Be it as a Staff Accountant or a Financial Controller.
- Be certified on paper: A simple test does not make a CFO, but many will agree that whoever has the Certified Public Accountant (CPA) exam is cut out to be a disciplined, knowledgeable, and committed leader. An MBA doesn’t hurt either, as it alludes to a candidate with top management, interpersonal, and team skills.
- Have fundraising experience: The CFO will steer your startup’s funding rounds and perhaps its eventual purchase, so it’s paramount that they’ve encountered these situations in the past and know how to handle them.
Tips to Find the Right CFO
The truth is that the most efficient and sought-after CFOs aren’t waiting to be recruited. Therefore, taking the first step to finding your best-matched CFO might take some elbow grease. But putting in the work will be worthwhile.
Finding your financial counterpart will become easier as your startup grows and makes a name for itself. The more interest you garner through early successes, the easier it will be to get the right exposure and attract top talent.
Asking your peers is another way to begin. If they don’t know anyone directly, they might know someone who knows someone — don’t we all? Likewise, attending industry events to network helps you do temperature checks on potential CFOs.
Additionally, feel free to engage with an actual recruiting agency. In many cases, they’ll know exactly the person based on the industry and your startup needs. After all, they know the hiring arena better than anyone else.
Perhaps It’s Time to Consider a Fractional CFO
Between developing a product and generating revenue, founders aren’t always willing and able to hire a CFO during their startup’s early stages. In-house C-suite executives can be costly, so a fractional CFO could be the answer.
A fractional CFO works part-time for a fixed amount of time and generally helps with specific goals like raising capital, growing revenue, or simply getting you through a rough financial patch. They offer senior expertise when you need it without draining your budget.
When you find your business is growing too quickly and need a plan for scaling and planning future growth, a fractional CFO can step in to build a stronger financial foundation. They could even assist during auditing periods when founders have little to no time to answer auditors’ questions, leading to a painless process for everyone.
Nowadays, there are solutions for startups to find a fractional CFO. For example, Burkland Associates has assisted companies like Bored Ape Yacht Club and RTFKT find the right match for better financial decision support and an improved financial tech stack.
Whether you’re just eyeing the possibility or seriously looking for a CFO, know that many flexible and cost-effective solutions are available at your fingertips. An expert in the field can quickly become your partner in crime to cover your company’s financial needs.
Understanding the details of what coverage your company needs can be confusing. Founder Shield specializes in knowing your industry’s risks to ensure you have adequate protection. Your startup can benefit from a Directors & Officers insurance, protecting your personal assets from any claims made against you by competitors, investors, etc. Feel free to reach out to us, and we’ll walk you through this insurance policy and more.