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When and Why A Startup Should Hire A Fractional CFO

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Hire a fractional CFO to lead the financial growth of your startup.
Hiring a seasoned CFO full time may be an expensive affair for a startup, but having the expertise of an outsourced CFO to track, maintain, and navigate your company's finances during difficult times is important in the survival and success of your business.

he number of start-ups flourishing in many industries has increased in recent years. However, these start-ups frequently struggle with the availability of limited funds, how to employ them efficiently, and the statutory compliances that each business must follow. Inability to use their financial resources can have damaging consequences.

Controlling a company’s finances and propelling the organization ahead becomes a challenging issue as the company becomes older.

From managing your books to spotting development prospects and maintaining your bottom line, even basic bookkeeping might feel like taking a complex math exam. You will need to recruit someone whose primary concentration is financial planning and analysis at some point in your evolution.

You will also need to appoint a Chief Financial Officer (CFO). But when does that become a need? And why do you require a CFO?

Let’s dive in.

What exactly is a CFO?

A CFO is a senior executive who serves as the financial leader of a company. Their duty is to research the industry, manage the accounting team, and design a strategy. Their major responsibilities in this financial campaign include forecasting, planning, and analysis—all of which help you scale strategically.

A CFO typically reports to the CEO and the board of directors. A CFO, as the main financial spokesperson, collaborates with the Chief Operating Officer (COO) to identify possibilities and potential hazards.

CFOs, as senior managers, are responsible for overseeing all of the company’s financial activities and ensuring that all financial reports are correct and completed on time. This function entails various key responsibilities, including but not limited to:

  • Planning and reporting on finances
  • Management of financial risks
  • Keeping records
  • Analysis of data
  • Stakeholder reporting
  • Fundraising

A CFO and their team are similar to a CEO’s crystal ball in that they use prior data to drive internal positioning, establish financial growth roadmaps, and help lead decision making to produce favorable outcomes for the business’s development.

When Should I Hire a Chief Financial Officer?

Choosing when to recruit a CFO has always been a difficult balancing act. If you recruit too soon, you may not be able to afford them; if you hire too late, you may miss out on opportunities to propel the business forward.

Traditionally, a corporation would not hire a CFO until its yearly revenue reached $50 million. 

If your yearly revenue is between $1 million and $10 million, you will typically recruit a controller if you plan to hire in-house. Usually, at this time in a company’s life, they will require a controller to oversee all accounting activities. This controller will then lead the bookkeeper and accounting teams while also serving as the CEO’s de facto CFO.

However, at this income level, most businesses can afford to engage a fractional CFO from an outsourced accounting firm.

In that situation, a company with a sales of $1 million can profit from these expert financial insights. However, deciding whether to engage a fractional CFO is mostly determined by the characteristics of the company’s finances, competitors, market, and growth objectives, as well as your team’s financial abilities and expertise.

If you’re wondering when to hire an outsourced CFO, here are a some questions to consider:

  • Would you be able to secure and advance beyond a Series A if you didn’t have a CFO?
  • Could you handle corporate tax compliance while maintaining annual revenues in excess of $10 million?
  • Would you like an accountant to help you with your process and enhance your bandwidth?
  • Do you have the expertise to forecast future events based on historical data?
  • Do you understand cash flow, profit and loss, the bottom line, and so on?

Even if you have access to the same financial data, you may not understand how to realize it and use it to generate growth. That is very reasonable, given the separation of a CEO and CFO is both healthy and natural.

Why Should I Hire a CFO?

A CFO investigates and analyzes your ledgers, payroll, and cash flow. When they can model your finances across all aspects of your organization, they can determine an exact ROI (or lack thereof) on your company’s production. 

Aside from general cost-benefit analysis, an outsourced CFO is responsible for five critical tasks:

Financial strategy and forecasting 

CFOs collaborate with an FP&A team (if there is one) to examine the company’s current and historical financials before making strategic investments or reallocating funds.

Details such as these would be included in a typical proposal:

  • Income and expenditure projections
  • Funding requirements
  • Policy on what surplus funds should be invested in
  • Capital planning and budgeting
  • Product/service pricing
Financial data analysis of a business will be taken care of by the CFO.

Management  

Chief financial officers oversee both the finance and accounting departments, ensuring that all necessary accounting procedures and policies are in place and followed.

They ensure that:

  • Investors receive monthly operational reports
  • Required financial reports are filed with the bankers

Financial reporting

CFOs ensure that financial reporting is error-free, compliant, and timely.

Treasury

CFOs examine the company’s financial position before determining the best course of action for employing resources in terms of debt and equity.

Transactions  

CFOs keep track of payroll, accounts payable and receivable, and ensure that they are correct, current, and paid on time.

Related: 6 Advantages of Hiring a Virtual CFO to Grow Your Business

The Importance of Hiring A Fractional CFO for Your Startup

Regardless of these responsibilities, many financial experts believe that the most important function of a CFO is to detect and reduce business risks. A CFO must discover where a team is underperforming, why margins are squeezing, and what possible dangers could undermine the business’s performance through constant financial data analysis.

After charting the data, a CFO advises key stakeholders on the next steps the organization should take.

Do you think your business would benefit from the expertise of an outsourced CFO? Contact the Chief Financial Officers of Today CFO and get a free consultation.

About The Author

Tom is the creator of the AIM Framework and Accounting Impact Method. He spends less time on fruitless theoretical methods, and most of his time bringing practical financial, tax, and technology solutions to business owners who want to make an impact on the world.

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