Here’s When to Hire a CFO for Your Startup
Tech startups get a lot of attention – just look at OpenAI – and 15% of the U.S. population works at these startups. While some succeed, many will fail. One of the main reasons for 44% of failures is running out of cash flow.
Poor financial planning is often a result of not hiring the right professionals at the right time.
If you don’t know when to hire a CFO for your startup or what these financial experts offer, we’ll explain everything in great detail below.
What Can a CFO Do For Your Startup?
A CFO does a little bit of everything, and when offering our virtual CFO services, we can focus on one or multiple areas of your operation. Responsibilities that we’re often tasked with are:
- Monitoring your startup cashflow
- Limiting unnecessary spending
- Reviewing product pricing
- Budgeting
- Preparing forecasts
- Creating financial goals
- Identifying your growth opportunities
- Much more
Adding a CFO to your startup can provide peace of mind that you have a professional overlooking your finances to lower the risk of running out of cash.
When to Hire a CFO for Your Tech Startup?
In-house CFOs may not be an expense that your startup can manage right now. Virtual offerings are available to help you hire a professional on a limited (fractional) basis. We believe that the best time to consider hiring a CFO is:
When You’re Raising Capital
Tech startups often burn through capital quickly during development and promotion cycles. If you’re receiving funding and capital is coming in, you need to use it wisely because funding can dry up quickly.
CFOs will:
- Advise you on how to allocate your funds
- Help you understand how long your funds will last
- Help you avoid risky investments
- And more
If you don’t have someone helping you manage your capital properly, it’s easy to invest in risky investments or mismanage finances. Your CFO can help you identify the best ways to utilize your capital so that you can continue growing your startup with fewer funding concerns.
When Your Finances Become More Complex
As your startup grows, your finances will become more complex. It’s no longer a matter of “income in and expenses out.” You’re now dealing with payroll, taxes, different income streams and other complicated financial matters.
If you don’t have experience with finances (most startup teams don’t), then a CFO can help guide you in the right direction. For example, even if your CFO doesn’t handle taxes, they’ll be happy to recommend someone who can. It’s easy to get overwhelmed and behind on your bills and compliance obligations if you’re not staying on top of your finances.
On the other hand, you may find that your startup is struggling to reach its growth goals. A CFO can help here, too. They can assist with developing a strategy that will help you hit important milestones.
When You’re Going Through a Growth Spurt
Growth is the goal of every startup, but when it happens rapidly, decisions become more critical and finances become more complex. A CFO can help you stay on track and make decisions that will support your goals.
Bringing in a CFO early on in the growth stage will allow them to guide your organization’s financial position from the start and identify issues before they progress. Additionally, a CFO can:
- Create accurate forecasts
- Build and maintain strategic partnerships
When You’re Ready to Go Public
If your startup is ready to go public, having a CFO on your team will be essential. A CFO can provide valuable support when you’re ready to take the next step in your growth journey.
When your CFO has prior experience with a public company and understands the financial metrics of businesses that are going public, it will give investors peace of mind that you’re being guided by someone who knows the process.
A CFO can help you prepare for an upcoming IPO and navigate this moment successfully.
When the Economy is in a Downturn
During times of economic turmoil, bringing in a CFO can benefit your startup in many ways. A CFO can help you:
- Create a solid financial strategy
- Raise capital
- Optimize profit
- Avoid taking on new debt
- Develop plans for the future
Your CFO can also take care of those important financial tasks, like creating financial reports, developing strategic plans and optimizing your financial performance.
Final Thoughts
A CFO can help your startup in many ways. The earlier you can bring them into your team, the better. If they can participate in your business from the beginning, they can help steer you in the right direction from day 1. If your startup’s budget isn’t ready for a full-time CFO, a fractional CFO will allow you to leverage the benefits of their services without the financial burden of hiring a new employee.
To learn more about our CFO services or how we can help you with your accounting needs, schedule a consultation now!
