A Guide to Financial Sanity – CFO to the Rescue
You recently launched your company after years of planning and wondering if you could actually do it. You’ve maxed out your credit cards and hit up your friends and family for funds. You’ve added employees and are starting to get some traction, so you raise your first institutional round of capital.
Now the real work begins.
In addition to working tirelessly to develop your products and your business, you now have some new bosses and stakeholders – your board of directors and those investors who thought so highly of you that they were willing to finance your plans. They expect to see, among other things, a professional business plan, detailed forecasts, business metrics and periodic reporting. Now what?
Find a CFO. Today’s mantra for startup companies is “Don’t invest in G&A costs until you prove you can 1) build your product and 2) sell it”. In other words, use your scarce resources to prove the product concept and establish that you have a market. More companies are delaying hiring a CFO and taking advantage of part-time professionals with deep financial experience. These finance professionals have often worked for tens of companies over their careers and have seen and done just about everything that a startup will require. So how do you find the right CFO and how do you manage that person?
What to look for in a CFO?
• Fit. While developing a rapport with the CEO and management team is a must, a good cultural fit with the rest of the team is important too. The CFO should have a “been there, done that” attitude, but also be creative and flexible enough to adapt to the team and its culture.
• Experience. A CFO with years of experience working with similar companies can enhance the management team, provide credibility with your board and investors and generally raise the level of professionalism at the company. Experience with your specific industry is a plus.
• Leadership. The CFO should be a natural leader and have the gravitas to slip into a leadership role, even on a part-time basis.
• Roll-up-the-sleeves attitude. Small companies often don’t have the resources to provide a lot of support. So the CFO must have a can-do attitude and be willing to do what’s necessary to support the company.
How do I manage the CFO?
A part-time CFO will do all the things a full-time CFO would do, but the key is to focus on the critical tasks and try to keep your total consulting costs in check. If you find that you are using a CFO for two or more days a week, then it probably makes sense to bring in a full timer.
• Cash management – a laser focus on the company’s cash position. How much do we have and where will it take us? What are the options to raise more? Debt, equity, grants?
• Budgeting and forecasting – the CFO should lead this process and make it a team-building exercise. The team must speak with one voice when it comes to the business plan and the financial model that underlies it. As critical, when actual data are available, the CFO must create a “variance analysis” that explains where things differed, both good and bad, from the budget. The explanations for those variances are what enable the team to alter course.
• Key Performance Indicators (KPIs) – also known as business metrics, KPIs provide actionable intelligence on the most critical parts of your business.
The CFO can help identify the 5 or 6 most important metrics and ensure that these data are assembled in a timely and accurate fashion. This enables the team to focus, not just on the 100 tasks they perform every day, but on the things that are truly going to “move the needle” in the business.
Beyond these key tasks, the CFO takes the lead on major accounting issues such as revenue recognition, project accounting, commission tracking, grant reporting or leases. The CFO will also manage business systems, audit, tax, insurance and often take the lead in facilities, legal, HR and IT in the company’s early stages.
Perhaps the best reason to find a part-time CFO is the flexibility that affords you. You can have the person in a few hours per month or a day or two per week. The CFO can partner with you and make recommendations on what skills are required in the finance team and when to bring on those full-time employees.
The right CFO is the critical bridge between the chaos of the startup and the discipline of the emerging growth company.
Chris Thomajan is TechCXO’s Managing Partner – Boston. See his full bio and contact information here.