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Finance

When Is It Time to Hire a CFO?

Posted by Early Growth

August 29, 2012 | 5-minute read (923 words)

You may think that you don’t have enough money to hire a CFO. You may be right. But, even if you don’t have the funds to justify hiring a full-time (or even part-time) CFO, you still need some sort of finance assistance. So when is it time to hire a CFO—and what should you do until then?

How Much Money Does a Startup Need to Hire a CFO?

As with so many early-stage company questions, the answer is, it depends. Mostly it depends on the complexity of your company and what you are trying to do.

We typically start working with clients once they’ve closed a seed round of funding. Most of our clients have raised $400K to $1.5M and are in a high-growth mode. At that point, they are definitely in need of strategic financial consulting.

Many business owners do not understand a lot about finances, especially as their business grows and becomes more successful. But it is very important that business owners know what is going on with their business financially. Hiring an accountant is a good first step. Even better is to hire an accountant and a part-time CFO. Your CFO can help you learn many important things about your business' finances. And even small changes to a current business finance plan can mean more money for a business.

Some companies that haven’t raised any money still need a CFO. Some conditions that may warrant taking on this role, include:

You have a lot of expenses
Your company is earning some real revenue
You have a lot of activity

If you’re experiencing any of these conditions, it’s time to bring in someone to support and guide your financial activity on a strategic level. Note that there is no need to bring a full-time accountant and CFO on staff. If your company is still small, it makes more sense to outsource these functions, getting support on an as-needed basis while simultaneously reducing your cost structure.

If you need some financial support and/or need more information about interim CFOs, contact Early Growth Financial Services.

What does a CFO Do?

Once you bring on a CFO, they can help you create strong financials in myriad ways. CFOs help with:

Business planning - providing your business plan with financial rigor
Financial projections - providing you with a bottom-up forecast: a detailed budget with spending plans by department
Rolling cash forecasts - enabling you to respond, in real-time, to emerging business conditions
Annual operating budgets - helping you keep track of maintenance operations, salaries, and interest payments
Three and five-year plans - forecasting expenditures and revenue during three- and five-year periods and creating corresponding strategic goals
Monthly management reports - with previous and current financial data
Pricing - building a financial model to set price
Manage debt - establishing a company budget and payment schedule to repay debt and keep debt low
Mergers and acquisitions - including business valuation
Equity and debt negotiations - restructuring your debt to improve liquidity
Liquidations - proper redistribution of your company assets and property

What If You Can't Afford to Hire a CFO?

If you haven’t yet been funded and don’t have a lot of financial activity, you may feel like it’s unnecessary to waste the money to hire financial assistance. Or you may simply not have the money to lay out for such an expense.

If this describes your company, it is true that you may not be in need of ongoing financial support such as the services an interim CFO will provide. But that doesn’t mean that you aren’t in need of some kind of financial support.

At the very least, you need to find a firm that can help you with your day-to-day transactional work: accounting and bookkeeping. Of equal importance, such a firm will be able to help you with regulatory compliance, so you stay out of tax trouble and the like.

In addition to accounting support, you will get help with:

Strong cash management - maximizing the availability of your cash
Sound internal controls - reliable financial reporting resulting in compliance
Monthly financial close - producing P&L, balance sheet, and cash flow statements every month
Accounting system implementations - for systematic system development, training, and implementation
Coordination of audits and taxes - maintaining and gathering records and necessary documentation
Accounts payable and receivables - using accrual-based accounting and help collecting payments

If you are in need of accounting support, contact Early Growth Financial Services.

Outsourcing your financial support frees up your time to focus on other aspects of your business. The company you hire will be responsible for making sure that you stay on track and take care of your financial obligations. While this will cost you money for the time being, it will save you much time and money as your company expands.

Is it time for you to hire a CFO? Tell us what you’re thinking in comments below, or contact Early Growth Financial Services.

David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He's a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.

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