Growing a startup requires entrepreneurs to actively oversee many facets of the business. Not only are you responsible for bringing in investment capital and developing your go-to-market strategy, you must also keep your finger on the pulse of financial reports while developing a financial strategy that gets you to cash-flow break-even, faster. In the beginning, you’ll likely hire someone to help you manage the daily bookkeeping tasks. As your business grows, you’ll need to bring in a CFO who can use their unique lens to help you make strategic, data-driven decisions about company growth. The trick is determining when the time is right and your business’ need for a financial leader outweighs the financial burden of added payroll. If you’re trying to decide if your startup is ready to hire a CFO, here are a few things to consider:
- Complexity: If you have a complex business model or operational structure you may benefit from having a CFO on your team who can focus on identifying efficiencies and improving the bottom line. For example, they might play a key role in managing your supply chain to help you build your product cheaper and faster.
CFOs can also help with the complexity of stakeholder management. As you add investors to your cap table and board, a CFO can help you with accurate, timely reporting about the company’s financial performance to help build trust.
- Growth: If your business is in a period of a growth, a CFO can also be a great asset to your team. A CFO has the diagnostic skills to examine the data and inform tough choices about where your limited cash should be directed for the most impact. They can also help you balance long-term growth goals with short-term revenue initiatives and be an advocate for you in the boardroom.
A company who has seen successful growth without a CFO, but has hit a plateau, might also benefit from bringing in someone with analytical expertise to help assess business activity and build a strategy to increase revenue.
- Experience: If your founding team can not provide appropriate insight into financial strategy or doesn’t have a strong background in data analytics, you might want to bring in a financial expert right from the start. It depends on the experience of your team. Potential investors have high standards for a company’s future financial plans, and if you can’t create and implement a solid financial strategy on your own, you will need the help of an expert.
- Revenue: Opinions vary on how much, but a safe average would be that if you are bringing in anything over $10 million, it’s probably time for a CFO. Once your company hits this size, a competent CFO can help expose any inefficiencies in your systems that could be taking away from your bottom line.
- Alternatives: It’s also possible that you need someone with financial expertise, but not in a full-time capacity. Many financial professionals offer their services on a short-term basis, taking on temporary roles during projects or providing monthly consulting fees to small businesses that don’t need or can’t afford to fill the job full-time. Fractional CFOs can provide targeted financial support when you need it, without the cost of an executive salary.
There is no one correct answer for when a startup needs to acquire a CFO. Drew Lyons, the Managing Partner at Focused Energy LLC shared that, “Bringing on financial help is completely contingent on how much data a company produces, and how well it is being managed, and in turn, how well that data is turned into information and communicated to managers, executives, and the board.” The bottom line? When you find that you need assistance to analyze and understand the financial aspects of your company, and need someone to work with you to develop a strategic plan for your future, it’s time to hire a CFO.