As an entrepreneur, your focus is constantly split between bringing an idea to life, building your team, and growing your startup. As you execute on each of those things to build a successful startup, your company’s financial performance becomes more difficult to accurately track and forecast. As that happens, you’ll want to consider an increasingly common way of getting your finance function in order: hiring a fractional CFO. Before you do, there are some critical questions that you need to ask.
How To Determine If Your Startup Needs A Fractional CFO
A fractional CFO is a highly experienced financial professional who works for multiple companies part-time on a contract basis. This person can help your startup with key financial responsibilities such as budgeting, forecasting, managing cash flow, and providing strategic financial advice.
While many startups feel that they can manage their finances on their own, there may come a time when they need an experienced finance professional to take the reins. Here are some factors to consider when determining if your startup needs a fractional CFO:
Complexity of Your Startup’s Financial Operations
If your startup has grown to a point where your financial operations have become more complex, it may be time to bring in a fractional CFO. They can help you navigate the complexities of financial reporting, compliance, and tax planning.
Need for Financial Strategy
A fractional CFO can provide strategic advice to help your startup grow and succeed. They can help you identify opportunities for growth, build a budget, forecast your company’s future performance, and provide guidance on how to achieve your financial goals.
Desire for Financial Transparency
If you want to maintain transparency in your financial operations, a fractional CFO can help. They can provide – and interpret – the tools you need to understand the financial health of your business, as well as guidance on changes that you should consider to grow as a financially healthy company.
If you find yourself spending too much time managing your finances instead of focusing on your business, it may be time to bring in a fractional CFO. They can take on the financial responsibilities, allowing you to focus on growing your business. Before you decide whether you need a fractional CFO, ask yourself the following questions:
- Do you struggle to make informed financial decisions?
- Do you have difficulties with managing your cash flow?
- Are you operating with little or no financial plan?
- Do you need to secure financing to support the growth of your business?
- Are you losing valuable time trying to manage your finances, instead of dedicating your focus on your business?
If you answer yes to any of these questions, it may be time to consider hiring a fractional CFO for your startup.
Preparing Your Startup For A Fractional CFO
Before you bring on a fractional CFO, it is essential to understand your business objectives and the financial challenges your startup faces. This will help you determine what you need from your CFO and develop an effective working relationship.
One of the most important things you can do to set your startup up for success is to have a clear financial plan. This should include a detailed budget, cash flow projections, and a plan for managing your finances on a day-to-day basis. If you don’t have that yet, don’t worry! A fractional CFO can help you develop this plan and ensure that it aligns with your overall business objectives.
Another key factor in preparing your startup for a fractional CFO is to be open and transparent about your financial situation. This means sharing your financial data and being willing to discuss your challenges and opportunities openly and honestly. By doing so, you can work together with your fractional CFO to identify areas where you can improve your financial performance and make better decisions for your business. Ultimately, it is a fractional CFO’s job to help you reduce uncertainty around the decisions you make, so the more information you give them, the more they can help.
It is also important to be willing to implement changes as recommended by your fractional CFO. This may involve making difficult decisions, such as cutting costs or changing your business model, but it is essential to stay open-minded and flexible in order to achieve your business goals.
Establishing clear communication and reporting channels is also critical to the success of your relationship with your fractional CFO. This means setting up regular meetings, sharing financial reports and data, and providing feedback on their performance. By doing so, you can ensure that you are both on the same page and working towards the same goals.
Finally, it is important to set expectations and goals for your fractional CFO. This means defining their role and responsibilities, as well as outlining the specific outcomes you hope to achieve by working together. By setting clear expectations and goals, you can ensure that you are both working towards a common vision and making progress towards your business objectives.
5 Best Questions to Ask A Potential Fractional CFO
When it comes to hiring a fractional CFO for your startup, there are several crucial factors to consider. While it may seem like a daunting task, taking the time to ask the right questions can help ensure that you find the right person for the job.
1. Prior Startup Experience
One of the first questions to ask a potential fractional CFO is what experience they have with startups. Startups have unique financial needs, and it’s essential to work with someone who understands the challenges and opportunities that come with starting a new business. A fractional CFO who has worked with startups before will have a better understanding of the financial landscape and can provide valuable insights to help your business succeed.
It’s also a good idea to ask for examples of how they have helped startups reach their financial goals. Hearing real-world examples from their past (including hard decisions they’ve had to make or hard times they’ve experienced) can give you a better sense of what a CFO is capable of and how they can help your business grow.
2. What Services They Provide
Another important question to ask is what services the fractional CFO provides. Different CFOs may specialize in different areas, such as financial planning, forecasting, or accounting. By understanding the services a candidate offers, you can ensure that you’re getting the support you need to achieve your financial goals.
3. Approach To Managing Cash Flow
Managing cash flow is a critical aspect of running a successful startup, so it’s essential to ask about a potential fractional CFO’s approach to this area. A CFO who has experience with startups will understand the importance of cash flow management and will have strategies in place to help your business maintain a healthy cash flow.
4. Industry Experience
When interviewing potential fractional CFOs, it’s a good idea to understand the kinds of industries they have experience with. While a CFO’s skills are highly transferable between industries, it may help to have domain-specific knowledge, especially if your startup serves a highly nuanced or niche industry.
Finally, it’s important to ask about a potential fractional CFO’s qualifications. Look for someone who has relevant experience and education, such as a degree in accounting or finance. Additionally, certifications such as a CPA or CFA can indicate that a candidate has the knowledge and expertise necessary to provide valuable financial guidance.
In conclusion, hiring a fractional CFO is a critical decision for any startup. By asking the right questions and finding someone who understands your unique needs, you can set your business up for long-term success.
Top Reasons to Hire A Fractional CFO
Here are top reasons why a fractional CFO could be a game-changer for your startup:
- You can access a highly skilled professional without committing to a full-time hire
- Your fractional CFO can help you save money by providing strategic financial advice
- A fractional CFO can help you manage cash flow and access capital when needed
- Your CFO can provide you with objective advice and assist with decision-making
- Working with a fractional CFO will give you the tools you need to make informed financial decisions for the future of your business
Investing in a fractional CFO could be the difference in the success and failure of your startup, so it is essential to ask the right questions and make an informed decision.
As with any hire, selecting a fractional CFO for your startup is an important decision. Ultimately, you need to decide whether or not you trust that they have the experience and judgment to help you guide your startup through uncertain times. Selecting the right fractional CFO is hard, but not impossible, and using some of the frameworks from this article can help you do it.
Contact the startup finance experts at Founder’s CPA today to explore whether it’s time for your startup to hire a Fractional CFO.