Do you think that because your business is small and growing, you can neither afford nor benefit from CFO services for startups?
Many founders have yet to realize the role a CFO can play in taking their company to the next level. A competent CFO provides much more than number crunching and watching the bank account. They help with budgeting, planning, and analysis; cash flow and profitability management; fundraising, reporting, and compliance.
This article aims to educate you and other founders about the role and benefits CFO services can provide your company.
Understanding the Role of CFO Services for Startups
A chief financial officer provides analysis and advice to management on financial matters. But unlike a controller or treasurer, who may focus solely on accounting activities, a CFO is involved in all aspects of corporate finance, including:
- Tax planning
A common misconception about the role of the CFO is that they just crunch numbers and provide financial statements to investors. In reality, CFOs are crucial in helping CEOs chart their companies’ growth strategies from an internal and external perspective.
The primary responsibilities of a CFO include:
- Developing strategic plans for growing the business
- Managing investor relations
- Monitoring cash flow
- Negotiating contracts with vendors, suppliers, and customers
While engaging CFO services differs slightly from hiring someone in-house, they can add tremendous value through strategic decision-making and planning.
When to Engage with CFO Services for Startups
Knowing when you need higher caliber financial services can be tricky for startups because the Chief Financial Officer (CFO) is not an operative function like a marketer or developer. The role is often considered one of the last pieces of the puzzle. Still, even early-stage startups could benefit by engaging a CFO.
For instance, hiring a full-time CFO may not be suitable for your business if you’re an early-stage startup still building your product or developing your business plan. Hiring bookkeeping services and financial reporting may be sufficient. However, you need to know when you’ll need the CFO services.
Here are some of the signs to look for:
- Your startup has raised money from outside investors and needs someone to help manage its complex financial reporting requirements.
- You want to expand into new markets but don’t have experience managing international operations or financial procedures.
- Your current accounting firm can only provide some of the strategic services required by your business.
- Your business has grown significantly and requires more complex financial planning and reporting.
Additionally, before engaging an outsourced CFO for your startup, it’s essential to weigh the costs against the benefits. A bootstrapped startup with little capital may struggle to afford a strategic external consultant like a CFO.
Someone with expertise in accounting and finance can be invaluable to your progress when taking your business from its early stages into something more substantial.
Key CFO Services for Startups
CFO services can come in many sizes and arrangements. Here are the most essential ones.
Financial Planning and Analysis
Financial planning and analysis are an integral part of any business. The CFO will prepare budgets, forecast revenue and expenses, and analyze financial performance over time.
Budgets help companies determine how much to spend on various items, such as salaries, rent, marketing, or supplies. Forecasting helps businesses anticipate future costs and revenues to plan for them accordingly.
In addition to preparing budgets and forecasts, the CFO may also analyze historical data to develop predictive models to map the business’s trajectory. These models inform executives about potential financial outcomes based on their recent decisions.
Cash Flow Management
Startups face many challenges, and one of the biggest is cash flow management. Cash flow forecasting and working capital optimization are critical to financial success.
Below are the essentials:
- Cash Flow Forecasting: Cash flow forecasting helps you manage and predict what’s coming into and out of your bank accounts.
- Working Capital Optimization: Working capital refers to the amount of money tied up at any given time — money locked up in inventory and accounts receivable (money owed by customers) less your accounts payable (money owed to suppliers). By managing these balances, businesses can maximize their available cash flow and reduce their need for external financing.
Fundraising and Investor Relations
A central advantage to engaging CFO services is the knowledge they provide when dealing with investors and fundraising. They speak ‘finance’ and can lend gravity to your financial projections when seeking to raise funds from investors through public offerings or private equity deals.
The CFO can also aid investor relations through quarterly earnings updates and annual shareholder meetings.
Financial Reporting and Compliance
An experienced CFO can also assist a startup with preparing statements that involve collecting and analyzing data to provide the necessary information for management to make strategic decisions. Of course, this can be time-consuming if done manually. Excellent CFO services will help you use and implement automated solutions such as cloud accounting software or ERP packages.
Finally, one thing non-experts often need help with is ensuring regulatory compliance. CFOs have an important role here. They are responsible for filing all forms on time, correctly filled out, and accompanied by supporting documents such as invoices or contracts.
Finding the Right CFO for Your Startup
When you’re looking for the right CFO for your startup, there are some important considerations to remember. Here are a few tips to help you make the best choice:
- Prioritize Relevant Experience: When hiring a CFO, looking for someone with experience working with startups is crucial. They’ll have a deeper understanding of what it takes to build a company from scratch and be better equipped to help you navigate the challenges of early-stage growth.
- Weigh Internal vs. Outsourced Options: You have two main options when hiring a CFO: bringing someone in-house or outsourcing to an external firm. An internal hire might make sense if you need someone with deep expertise in day-to-day operations and have the resources for their compensation package (and enough work for them to do). However, an external firm may be a better fit if you’re looking for someone who can focus solely on financial planning and other strategic activities without getting bogged down in other tasks like payroll management.
Ultimately, the right CFO for your startup will depend on your unique needs and priorities. These tips will equip you to find the right person or firm to help guide your financial strategy and drive growth.
Founder’s Offers CFO Services for Startups
The startup experts at Founder’s can help you balance the costs and benefits of engaging a CFO for your business while ensuring your company is on the right track. Contact us today to get started.