July 19, 2021 | 5-minute read (884 words)
Many new businesses think they don’t need a chief financial officer until they reach a certain size. Some mistakenly believe that only mega-corporations have CFOs.
But startups can grow much faster by having someone on board who understands their financial objectives and who has the skills to devise corresponding strategies. By bringing on a seasoned CFO, startups have an expert on hand to guide strategic decision-making, assist with planning and improve overall operations.
The concept: It is difficult for startup owners to assess whether a CFO can help them achieve their goals unless they are familiar with the role. First and foremost, a CFO is a highly skilled individual dedicated to efficiently handling your company's finances and serving as its financial spokesperson.
The CFO also helps startups expand by establishing investor and customer relationships. They manage the basic financial processes and reporting requirements your business will need when seeking funding.
When it comes to hiring a CFO, one of the most important considerations is timing. If you wait too long, they won’t have enough time to learn about your company before fundraising or an IPO.
The previous job description just scratches the surface of a CFO’s role. Below is a comprehensive explanation of everything that a CFO should be able to do for your startup.
Tax planning and compliance
CFOs provide tax advice. They also ensure the company complies with all applicable regulations for every transaction and financing round.
Creating a scalable infrastructure
A CFO may assist a startup in creating a dynamic atmosphere to foster growth. In managing payment processing to payroll to cost analysis forecasts, they establish a scalable financial infrastructure to accommodate the startup’s growth.
A CFO typically supervises data collection in accounting, customer behavior and beyond to provide data-driven, actionable insights the firm needs to make educated decisions. Your CFO should verify and analyze the accuracy of financial and operational data gathered from diverse sources. Maintaining quality data will assist development of your go-to market strategy.
A CFO can help your company fundraise. They develop economic predictions to present to potential investors and persuade them that these estimates are reliable.
The more data-driven your business is, the more likely you are to see opportunities and avoid mistakes ahead of time. When a startup intends to go public or merge with another company, the CFO can devise plans to deal with difficult financial times and rapid growth to ensure a seamless transition.
Before deploying new tech solutions, the CFO assists top management in considering any operational and financial concerns, along with potential hazards. They evaluate, manage and arrange procedures to prevent procurement and operational risks, including late payments, lost goods and corporate asset misuse.
Business financial reports are essential tools for startups in making daily decisions. When reports are complete and accurate, financial data can be turned into valuable insights and the startup is more likely to succeed. CFOs may assist in budgeting by providing monthly management, KPI, tax and investor reporting.
The CFO will evaluate all financial data in the reports to determine subsequent actions. Their precise financial reports help early-stage firms attract investors.
By recording cash flow data and evaluating client payment trends, CFOs create financial predictions. They guarantee that the company has the resources to fulfill its objectives and capitalize on possibilities.
CFOs make sure that your company's limited financial resources are used wisely and in accordance with its strategic goals. They can help manage personnel and technology costs, as well as track elements that influence performance.
Create and implement company strategy
CFOs help companies with their long-term planning, scenario analyses, expansion, acquisition choices and various other high-level decisions. They can devise a financially sound strategy to help achieve your startup's long-term financial objectives.
Make a compensation plan for salespeople
When applicable, a good compensation scheme encourages salespeople to meet objectives that are in the firm's best interests. A CFO regularly evaluates the sales compensation policy to verify that it is still relevant in terms of quotas, commission rates and performance incentives.
Enhance business procedures
CFOs can fine-tune the month-end reporting schedule, credit and collections procedures, client onboarding, lead time to revenue and improve lead creation. They may also assist you in analyzing and updating marketing tactics so you get the most from your marketing budget.
Allocation of strategic capital
Based on how the business operates, its value proposition to customers, its cost drivers and the market or competitive environment, a CFO will advise where the company's spending should be directed.
Cash flow management
Due to their experience in different finance departments, such as treasury, audit, financial planning and business analytics, CFOs typically have years of expertise in cash flow management operations. They are frequently specialists in various finance and accounting topics, such as financial regulation, international accounting and capital structure.
When to consider an outsourced CFO: If you seek the advantages of a CFO but lack the finances to hire one in-house, you may wish to fill the role on an outsourced basis. An outsourced CFO can provide the services your startup needs for the hours that you need them. Such an arrangement can save money and time in the long run by helping your startup achieve its objectives.