“Do I really need a CFO right now? My company is so small. I’m still figuring out my business. What would a CFO even do for me?”
Every week, I hear these questions. Over the past 15 years, I’ve worked with hundreds of early-stage and growth-stage companies, and I’ve held the position of CFO myself. Yes, a CFO (even a fractional one) can often benefit a startup.
For these founder/CEOs, I frame what I believe are the three ultimate responsibilities of the CFO: capital management, risk mitigation and business strategy. These three benefits, as you can imagine, are all interdependent. Yet all ensure value creation for shareholders and contribute toward the ultimate success of the business. Here’s where a CFO can make a big difference.
1. Capital: Management and Strategy
Cash is king in a startup, and a CFO is key to managing cash well. The CFO’s role here is to make sure the company is well-capitalized based on its business strategy — and to help fix it when it isn’t.
The CFO is the guardian of the company’s cash, monitoring cash inflows, as well as the when, how and to-whom of cash outflows. They focus on financial performance and ensure there’s enough cash to execute operations now and in the future.
The second half of a CFO’s capital responsibility involves setting the strategy for the business. This includes determining how much capital the company needs to start, grow and scale, and where, when and how the business should obtain this capital.
Entrepreneurial capital is hardly an efficient marketplace. There’s an experienced art around managing equity, employee incentives, venture debt and leverage; the timing of proposed capital raises; and the use of capital during the life cycle of the business. Even bootstrapping companies can have complex capital strategy challenges. An experienced CFO comes in quite handy here, because there’s more than just math involved.
2. Risk: Assess and Mitigate
If your business fails, it shouldn’t be because an East Coast flood shut down your production facility for several weeks or because the CEO of your sole supplier unexpectedly had a heart attack (both recent and real examples). The second area of CFO responsibility is to effectively manage risks — both internal and external — to keep unusual circumstances or non-business-related factors from damaging your company.
A CFO works to reduce the business impact of outlier events in many areas. Internal risks include managing financial controls, legal and tax compliance, and insurance. Customer and/or vendor risks fall under the watchful eye of the CFO, which extends to areas well outside of accounting and finance like IT-, people- and HR-related risks.
Beyond company walls, the CFO even keeps an eye on things like competitive threats, macro financial shifts that might impact customer buying behaviors and, of course, shifts in capital markets.
3. Corporate Strategy
Through the first two lenses of capital and risk and a third financial lens, the CFO leads the executive team in setting a course for the company’s business strategy. Their goal is to align the capital and risk profiles with the direction of the company.
The CFO plays a critical role in constantly monitoring whether the company remains on-strategy, and noting when the strategy is flawed or hits a bump in the road. As CFO, I’ve often had to deliver difficult news — once when a company’s indirect sales channel strategy was ineffective and we needed to pivot and build out a direct sales team. Again, when a product was not going to be ready on time and we needed to radically course-correct our cash forecast. And again, when we were behind on margin contribution and needed to push back hiring or risk running out of cash before hitting key milestones. After I delivered that news, we adjusted our strategy to get back on course.
Great CFOs have a keen ability to have this visibility and to look critically at operational and financial information. They can analyze all areas of the business — sales, marketing, product development, customer success and more — and communicate all they see with the team. They analyze the company’s current performance while looking forward as a strategist and finance advisor to future business.
You Don’t Need to Hire a Full-time CFO
The neck-breaking speed at which high-growth companies operate means that hitting bumps at 100 MPH can have a jolting, catastrophic impact. With opportunities like cloud infrastructure, globalization, the gig economy and other new challenges, business complexity has increased significantly. A CFO plays a critical role in looking down the road and avoiding the potholes.
Whether your CFO is a full-time hire or a part-time advisor, a college classmate, a retired executive or a professional fractional CFO, there are many ways to get this expertise into your business today.
In searching for your CFO, make sure they have experience of the past, which is strongly centered in their sleeves-rolled-up accounting experience. Make sure they understand present business operations, which centers around their analytical prowess. Finally, make sure your CFO has demonstrated futureforward-looking skills, with strong strategy, capital and finance capabilities. And of course, critically interview your CFO on the three core areas: capital, risk and strategy.
If you are looking to improve the likelihood of success based on the merits of your product or service, then adding a CFO lens to your complex business should be a high priority.