It seems like the term CFO is usually associated with larger corporations or enterprises. But it’s a common misconception that the position isn’t required for a startup.
That’s simply not the case.
A startup company can benefit from a CFO, assuming they can find the right person for the job.
However, experienced CFOs may not always be interested in joining a startup. Assuming you can find a qualified CFO who wants to work with your business, there’s a good chance that a startup can’t afford their desired salary.
That’s why an outsourced CFO is such an appealing alternative.
With an outsourced CFO service, you’ll get all of the benefits of an experienced CFO that specializes in startups, without the high costs associated with this hiring role in your business. Plus, as a startup company, you won’t necessarily need a full-time CFO.
An interim CFO will be more than enough to get the job done. For those of you who are on the fence about hiring a CFO, I’ll explain how a CFO can help your startup.
Manage Cash Flow
As a startup, your business lives and dies by the cash in the bank.
Since you haven’t scaled your company just yet and don’t have steady recurring income, your cash supply is fragile. Knowing how much money you’ll be getting in the short-term and long-term can be difficult to predict, especially if you don’t have experience with this type of analysis.
But an experienced CFO will have a much better understanding of your cash inflows and outflows. They can help you make tough decisions on when and where to allocate your funds.
Your CFO will also let you know if you need to pass or postpone certain financial obligations.
While a specific opportunity may seem like it’s in your best interest now, it could ultimately dry out your cash supply in the next 12 or 18 months. An experienced CFO will help you with cash flow management and advise you through tough financial decisions.
Improve Financial Processes
Adding an executive role to your startup will make your job as an owner so much easier. A CFO can take quite a heavy workload off your plate.
Let your CFO worry about the finances, which is their area of expertise. This gives you more time to focus on other areas of your business.
Your CFO can also manage other positions in your financial department, such as your bookkeeper and controller. A CFO can work with your accountant when it comes time for tax preparation.
Making sure that all your financial statements are in order and representing your company in the event of an audit will also be the responsibility of your startup’s CFO.
The generally accepted accounting principles, better known as GAAP, is something that’s often overlooked by startups.
Without any accounting or bookkeeping experience, I’ve seen countless startup owners develop their own methods for tracking their financials. Usually, these don’t always comply with GAAP.
It may seem harmless in the beginning, but as your startup scales, you need to have a bookkeeping system in place that can accommodate your growing business.
While it’s not the job or responsibility of your CFO to do daily bookkeeping, an outsourced CFO will give you the guidance and tools to make sure that you’re following all standards and best practices for accounting.
As a result, it will be much easier for you to create clean essential financial reports for small business bookkeeping.
Most startups will require some form of funding to get off the ground. Depending on the type of company you have, some of you will need to raise more capital than others.
There could even be instances when you need to raise money multiple times throughout the early years of your business. This is not always an easy process.
To get funding from a bank, VC, lender, or any other type of investor, your financial documents must be pristine. These reports should show the current state of your business while including accurate short-term and long-term forecasts.
Any mistakes here could cost you the loan or investment.
But a CFO will ensure that everything is prepared properly so that it’s presentable to all potential lenders and investors.
Some CFOs also have connections to VCs. The fact that a certain CFO is associated with your startup could be enough of a reason for a VC to come on board and invest.
Your CFO will also help ensure that the lending rates and terms of any fundraising are favorable for your startup. Otherwise, you could be put into a position where repaying a loan was more expensive than you initially planned for.
The role of a CFO in a startup will be different than the same position in a larger business.
The key is finding a CFO who specializes in startups but has the capabilities and the experience to help your company as it grows over the years.
Rather than trying to find a full-time CFO, which can be expensive for a new business, you should look for outsourced CFO services that have experience working with startups.
While the points that I’ve covered in this guide are geared more toward the CFO’s role in a startup, it just barely scratches the surface of what a CFO brings to the table. You can also review my guide on common outsourced CFO services to learn more about what a CFO can do for your business.
Navitance specializes in helping startups grow. So, let us know what you’re looking for, and we can set you up with an outsourced CFO for your startup.