Shall an early-stage startup hire a CFO?

written by Alexey Knysh, Senior Partner, Head of Financial Advisory

CFO is the brains behind the company and is responsible for digitizing the business. He must be aware of financial data and key metrics, such as CAC, % of the market share, customer retention, churn rate, client satisfaction rate, etc. The CFO is usually immersed in all operational processes: sales, marketing, product development, engineering.

The CFO supports many of the company’s strategic and tactical decisions. He helps determine:

• whether the product will be profitable;
• is it worth developing a new project;
• how quickly this or that investment will pay off, for example, investment in software;
• which lines of business are profitable and worth developing.

Often startups realize that it is time to get the finances in shape after these problems arise or under external factors such as the upcoming due diligence. However, you can prevent all these issues by managing your finances right from the very beginning. If you don’t have an internal specialist, consider hiring an expert.

When should you hire a CFO?

If your project is still at the idea stage, there is no need for a CFO. However, as soon as you start business operations, a CFO will play an essential role in establishing all the necessary processes, in particular:

• Set up and run management accounting and reporting.
• Implement cash flow forecasting and control.
• Create a strategic model and a budget for the company; update them regularly.
• Organize the opening and management of legal entities.
• Suggest solutions for the structure of products/services and optimization of business costs.
• Prepare the company for due diligence, create a financial model for a fundraising process.

A good CFO is rather expensive, especially for the early-staged startups. That’s why, at first, this competence can be closed by the CFO on-demand services.

It will help:

• Set up financial infrastructure and management reporting.
• Implement strategic planning and budgeting.
• Build up the financial processes and grow your financial expert for a CFO position.
• Regular support during monthly reporting and planning. Also, consult upon request if financial assistance is required.

Moreover, the CFO on-demand service is cheaper than the full-time CFO. All this makes it an excellent option for companies that cannot yet hire a full-time CFO but understand the necessity to keep finances in shape.

To sum it up, paying attention to your finances from the very beginning will help with such essential issues:

• Take control over the use of funds and avoid the situation when money is out prematurely.
• You and your partners will understand whether you make money, how much dividends you can withdraw, or pay bonuses?
• As the owner, you will have confidence in the financial information.
• Be more confident about legal and tax implications if you plan to move to another country.
• Prepare investor-ready financial reporting and the model if you are planning to fundraise.

So, whether you decide to hire a full-time CFO or a CFO on-demand, always remember to consider any business transaction’s financial implications, predict your company’s future, and rely on qualitative data before making decisions. Of course, with financial expertise, internal or external, this will be much easier.