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A Founder’s Guide to CFO’s Role in Startups and High-Growth Companies

It is wise to get the assistance of an experienced startup Chief Finance Officer when starting up a company. Check out this Spenmo's guide to CFO's roles.


 


Startups may be small in size, but they come with advantages larger firms don’t have. Because they have small management teams, they are faster in making decisions. They are also quicker in reacting to potential market changes than larger businesses. But, many of them don’t make it past the challenging first few years of operations.

According to the US Bureau of Labor Statistics, 20% of startup businesses go belly up during the initial two years of operations. The same study revealed that 45% go under in the first five years, while 65% do so within the first ten years. Although many factors contribute to this failure, a study by the US Bank reveals that 82% of businesses fail due to a lack of proper cash flow management.

Looking at these figures, you can see that owning a startup business is no easy feat. It has its share of wins and losses that are not for the faint-hearted. So, if you’re a startup business owner yourself, you must be brave enough to face all types of challenges. You need measures in place to ensure that you’re not setting up your venture for failure.

 

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What Does a CFO Do in a Startup Company?

Making sure you have a Chief Financial Officer (CFO) can be the key to your success. A CFO is a person who manages a company’s financial activities. These include financial planning and analysis as well as cash flow tracking.A CFO’s role is similar to that of a controller and treasurer and takes over the management of your business’ accounting and finance functions.

A CFO reports to the Chief Executive Officer (CEO) of a company. And, according to an article in CFO magazine, a CFO has four significant roles. When they generate value for the business, they work as agents for change. Meanwhile, they are also strategists as they create corporate strategies. When they standardise the compliance and control processes in the business, they act as guardians. They are also production overlords when they standardise and automate the processes for business transactions. They work hand in hand with the Chief Operating Officer or COO of a company.

So, based on all these roles, we can say that having the startup CFO with the right skills and experience is pivotal in the long-term success of a business especially when it comes to finances. However, many startups often leave hiring a CFO until the very last minute. Most of them don’t do this until they are already established or have their IPO (initial public offering) in place.

Doing so may cause problems in the long run. Having a CFO or at least an outsourced CFO or firm is important in ensuring the accuracy of your financial books. A startup also needs to have all its compliance and governance processes in place. Without this, it faces the danger of hindering its growth.

What are a CFO’s Responsibilities in a Startup Company?

Develop Contingency Measures

Startup founders are usually negligent of such long-term issues like proceeds investment and debt management. Their priorities lie with surviving the first two years that they become short-sighted.

A CFO can prevent this from happening. As they are skilled in forecasting and hindsight, they usually develop and put in place strategies that deal with financial challenges. The same goes for handling sudden or unstable growth.

An experienced CFO can provide invaluable information and guidance to startup operations. So, if you are looking for a CFO, it is wise to keep an eye out for those that have experienced “turnarounds”. They are the ones that have seen businesses on the brink of failure and assisted in creating and implementing processes that resulted in business recovery.

Oversee Cash Flow

One of the primary challenges of startups is having the ideal amount of funding to take off properly. Many startups, or even established businesses for that matter, can easily spend their venture capital before they have even made a name for themselves. Balancing high operational costs and low revenues is like walking on a tightrope, especially during the first two years.

CFOs handling a business should be skilled in managing payables and expenses to avoid unnecessary spending. They can also assist in ensuring that a business remains stable despite the challenges of the early stage of the operations.

Provide Funding Guidance

Startup owners usually need money from banks or other financial institutions to take their ventures to the next stage, and it involves an exhaustive process of applying for loans to secure funding.

If you have a CFO in your corner, you will have someone to guide you through this step in your business. Their due diligence management and financial planning skills can help you rope in investors. They can also aid in the wise spending of this money. With this kind of assistance, your starting capital will greatly impact the launch and growth of your startup.

Create Strategies Based on Data

Financial data and spend analytics tools and technologies are now allowing CFOs to expand their roles. Now, they are taking on such responsibilities as providing advice on business strategies. This financial data provide insights into better cost accounting. These also allow startups to understand customer behaviour, which leads them to meet changing demands and preferences.

A startup CFO can manage data collection and analysis. Then, they will generate insights based on this data, which will help your startup compete with other businesses within your niche. These tools also analyse the information gathered, so you will have a better idea of your business’ direction.

Set Up Efficient Financial Infrastructure

A good CFO can assist startups in setting up a robust foundation that will support their growth. The scalability of your financial system is critical in strengthening your business’ foundation, and a CFO can help you with this.

Keep in mind that your startup can grow exponentially overnight. When this happens, you must be sure that your financial systems can handle the hike in demand for your products or services. Otherwise, you will not only lose customers. You will also lose momentum and possibly get some bad press in the process.

A highly experienced CFO for startups can establish scalability in different areas of your operations such as accounting and human resource development to payment processes and payroll. They also handle your company’s financial statements and financial reporting.

Prepare Startups for the Next Level

Your startup will only be a startup for a year or two. If your company survives the first few critical years of operations, it may mature into a lucrative business. It could also get bought out and acquired by another corporation. Whatever the case may be, a CFO can help you get ready for these changes and work towards a hitch-free transition.

Because of the rapid evolution of scale-up companies and startups, it is wise to be flexible in their staffing strategy. As a startup owner, you should be cautious about over-hiring or getting bogged down in searching for skilled personnel. Having a CFO can help you with this matter.

Many finance leaders now use a flexible workforce for all types of businesses, which means that the full-time employees are only those that have critical roles. Meanwhile, interim employees, independent contractors, and project-based professionals support these tasks. These hires work for a limited time and usually focus on specialised assignments when needed.

Skills CFOs Must Have
Technical Know-How A CFO must have strong knowledge and understanding of technology and its latest advancements. These include automation of processes and the use of other digital services. They should know the challenges and opportunities technology can provide to businesses.
Strategic Reasoning A CFO with a vision will help any business realise its long-term goals. They see opportunities even among problems. Strategic reasoning skills can help CFOs manage different areas of a business’s operations.
Financial Savvy A CFO must have robust accounting knowledge and experience to help startups survive the first few years. They should also have a good understanding of business analytics and far-reaching business knowledge.

Must You Hire a Full-Time CFO for Your Startup Company?

Business owners must do everything in their power to ensure that their financial statements are in good condition. While some CEOs are skilled in finance and accounting, this is not the same for everyone.

If it is not within your bandwidth to hire full-time CFOs at the moment, consultants or outsourced CFO and accounting firms may be another option. Hiring a CFO, even on a consultancy basis, will definitely help you solve your financial struggles and keep your books intackt. An interim CFO can be a wise move when you need a CFO’s expertise on investments and planning but can’t afford to hire one for a full-time position yet.

Getting an interim CFO on board is a flexible and cost-effective way to fill out this critical role. Besides, startups usually progress so fast, and they barely have enough time to hire an experienced professional for a full-time position. And, if they hasten through the process, the tendency is they might hire someone not suitable for the part.

Hiring a skilled and experienced CFO can result in adding value to your startup or high-growth company. Their insights and knowledge will ensure the survival and longevity of your business venture. Regardless of whether you hire a full-time or an interim CFO, you can be sure that they will assist your company to effectively scale and meet the changing needs of your niche market. As your business matures, you will be able to formalise your operations and face all future challenges head-on.

 

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