Utilizing CFO Services for Startups
As a startup, your business is going through significant changes very quickly. When you’re just getting started, handling your company’s finances well is both absolutely crucial and enormously complicated. Even if you have experience in the financial sector yourself, your focus should be on growing the company, not on the minutiae of every financial decision. However, to move your company to the next phase of growth, someone needs to handle these decisions. That’s where working with a CFO can help.
What Is a CFO?
The CFO, or Chief Financial Officer, is one of the most important employees of most companies. They are also known as financial controllers, and they make decisions regarding everything from the company’s investments, income and expenses, and capital structure. The quality of a company’s CFO is often correlated to its success because of how many fundamental decisions are affected by the CFO’s input.
Because of these responsibilities, the CFO is supposed to be someone with significant financial experience, such as 15 years working in financial fields and some experience working under another CFO. Many CFOs will have their Certified Management Accountant (CMA) designation or Certified Public Accountant (CPA) designation as well. CFOs are often considered the third most important employee in the entire company, only behind the CEO or company president.
The Duties of a CFO
As the person who makes many critical financial decisions for a company, the CFO has many duties. Every business will break up these responsibilities differently, but typical duties for CFOs include:
First and foremost, CFOs are responsible for their company’s current financial condition. The treasury duties include deciding how to invest the company’s funds. This also includes managing the company’s capital structure, or how it balances equity, debt, and other financing. Keeping the capital structure in hand and ready to support company growth is the most important duty of any CFO, but especially for CFOs of startups preparing to grow.
CFOs are in charge of more than just present-day operations. They are also responsible for providing historical financial data to analysts, employees, creditors, and shareholders. The CFO themselves may or may not compile this data, depending on the company, but either way, they bear responsibility for its accuracy. Inaccurate historical information can affect future funding, employee morale, and even legal proceedings, so it must be correct.
Forecasting and Strategy
Finally, when the present and past have been considered, the CFO looks to the future. While the CEO and president of the company make decisions regarding the company’s future, the CFO advises them on the company’s financial strengths and weaknesses. A good CFO can help guide the company into the future with effective forecasting and an understanding of economic strategy.
Why CFOs Are Important to Startups
A good CFO is much more than just an accountant. The work done by a CFO can help a startup transition from a seed to a full-blown success. It can be all too tempting for startup founders to try to run the entire business by themselves. However, as the business grows, this quickly stops being feasible or even possible. A CFO can help take a significant burden off the founders’ shoulders and allow them to focus on their core competencies: growing their business.
Shiny helps you hire a fractional CFO by matching you with pre-vetted CFOs in our talent pool. Get matched and introduced to our CFOs for free.
The Difference Between a Fractional and a Full-Time CFO
Just because a CFO can be a critical member of a startup’s team doesn’t mean that it’s necessary to hire a new employee. There are two basic options to consider when choosing a CFO: a fractional CFO or a full-time CFO. Both have their benefits and drawbacks, so it’s worth understanding the difference before making your choice.
Hiring a full-time CFO is the traditional model. These CFOs are full-time employees of the company and spend all their time handling their employer’s business. Because they dedicate their time to just one company, they expect compensation in relation to their significant experience; the CFO is often one of the most highly-paid employees in a company. In return, the company receives dedicated support from an expert in the field.
On the other hand, using a fractional CFO service is a modern model that’s becoming more popular by the day. Instead of hiring a dedicated employee, using a fractional CFO service allows the company to outsource the CFO’s responsibilities. The company only has to pay for the services rendered, instead of a full CFO salary. Meanwhile, the CFO in question splits their time between several companies, focusing on the services these companies actually need. There is still an individual relationship between the CFO and the companies they support but without the obligations of full-time employment.
Full-time CFOs are most often an excellent choice for large, established companies. These companies have enough departments, products, and employees that having an on-staff CFO is practical and not a strain on funds.
On the other hand, small businesses and startups focusing on agility and growth benefit from the simplicity of using a fractional CFO. These companies can outsource the work they need to be done to a verified expert without taking on the burden of a full-time staff member. Working with a fractional CFO through Shiny offers all the benefits of having your own CFO without the drawback of paying hundreds of thousands of dollars for their salary.
How Startups Can Use CFO Services
A fractional CFO service like Shiny can perform any of the tasks that a traditional CFO might handle. To be more specific, using fractional CFO services for startups can help your business cover every task a traditional CFO may perform, as well as some benefits that you might not see elsewhere. Here’s a selection of ways working with a fractional CFO service could help your startup flourish.
Receive Startup-Specific Guidance
The work done by a CFO at an established business may have some significant differences from the work they’d do at a startup. After all, the strategies, cash flow, and funding sources are significantly different between the two. Many CFOs who work at a single company full-time have significant experience working for established companies, but little or none when it comes to helping startups.
Using a fractional CFO service, on the other hand, gives you access to CFOs who specialize in working with startups. These CFOs may have worked with dozens of startups in the past, so they have experience in helping new businesses grow and develop. When working with a fractional CFO, you can receive guidance specific to startups like your own without paying a full-time salary or consultant fees.
Access a Diverse Network
The experience of working with many different companies makes a fractional CFO valuable in other ways, as well. CFOs develop networks over their time working, and a fractional CFO can create a more diverse network than many of their colleagues.
For a startup, the connections of those involved in the business offer significant value. Relationships and interpersonal networks are among the most useful ways to access resources and find new customers. By working with a fractional CFO, your startup has the benefit of their entire network while only paying for the time they spend on your business.
Adjust to Rapid Growth
Many startups go through alternating phases of preparation and growth. During periods of high growth, having the support of an experienced CFO can be crucial. These experts can help your company expand its current systems and adjust to its new obligations and revenue streams. They can also be a useful resource to help manage cash flow and profits, helping growing startups to keep up their momentum.
By working with startup CFO services, you can choose to work more closely with your CFO during a period of high growth and back off as things stabilize. As a result, the company uses its resources more efficiently, and its founders can keep their focus on the future.
Review Customer Contracts
The first few contracts a startup takes may be the difference between success and failure in the long term. A well-written contract can protect the startup, avoid costly risks, and make it more likely that the new customer results in profit for the business.
Part of a CFO’s duties can be to review and address contract concerns. The CFO can point out risks or gaps in the contract’s wording and advise on negotiating more profitable agreements. Experienced CFOs are also able to assess whether a deal is worthwhile in the first place and whether agreeing to the terms are in the best interest of the business. This guidance can help the company avoid mistakes that would difficult to reverse.
Prepare Financial Reports
Startups can benefit from working with a fractional CFO even when growth is stable. One of the most fundamental tasks of a CFO is to prepare financial reports for the company. Outsourcing the work of a CFO lets you work with a professional to confirm the accuracy of statements like your balance sheet, the profit and loss statement, and the cash flow statement.
These documents are crucial for showing investors and stakeholders your startup’s value. Accuracy is also a critical aspect of keeping your business in compliance with accounting standards and financial regulations. Having a CFO look over these documents and prepare well-written and accurate financial reports both ensures that your business is following industry regulations and reassures stakeholders that your company is trustworthy.
Create Financial Projections
Looking to the future, a fractional CFO for startups can also help your business produce accurate and useful financial forecasts. Serious investors look at their potential investments’ financial projections to decide whether any given startup is worth the time and money. A financial forecast prepared by a CFO with their CMA designation is more trustworthy and more valuable to your potential investors than most alternatives.
Financial projections are also useful within a company. Understanding the financial forecast for the short- and medium-term can help startup founders make better decisions for growing the company. For example, if it looks like it will take a few months to build consistent revenue, it’s easy to see that the company should wait to commit to debts with long-term repayment plans.
Discuss Strategic Plans
Financial projections and forecasting lead directly into the next reason to work with a CFO: strategic planning. The qualified CFOs available through fractional CFO services have years of experience helping companies decide on future strategies. Working with fractional CFO services for startups can help you make better decisions and create more effective plans for growth.
Address Legal and Financial Concerns
A startup that’s on its way toward high growth will often accrue a number of legal and financial obligations in the meantime. While it’s worthwhile to work with qualified legal professionals to design and understand your startups’ legal documents, a CFO can also be useful.
Where legal teams have an in-depth understanding of the law, your fractional CFO will understand your company and finances. The CFO can act as a legal team liaison, effectively acting as a go-between to review legal documents that will affect the company’s finances. Having their expert input can help you remain aware of the potential outcomes from agreeing to any given contract.
Provide HR Oversight
With any period of growth comes new staff for your startup. Whether you’re taking on your first few employees or adding a whole new department, a CFO can provide necessary oversight to your Human Resources team.
Staff is almost always the most significant expense for a company, and startups are no exception. Consulting with a CFO can help keep your startup’s headcount lean and flexible. More importantly, it can also help HR find redundancies and keep staffing costs low. If you’re looking to develop a competitive benefits package, a CFO can also help you find options that are worth the investment.
Creating a startup always carries a certain amount of inherent risk. Understanding whether any given risk is worth taking can become confusing without adequate guidance. In terms of financial decisions, CFOs are one of your best possible resources for judging risk well.
Choosing to work with a fractional CFO compared to a full-time employee can help you avoid risk as well. Hiring a full-time CFO involves committing to a contract and a salary with a specific person. On the other hand, fractional CFO services for startups offer you a wide variety of potential CFOs under a single contract. This protects the company from having to repeat the entire hiring process or wasting time during onboarding. Not only is working with a fractional CFO an excellent way to identify potential financial risks, but it’s also the safer option for startups working on thinner margins.
Shiny helps you hire a fractional CFO by matching you with pre-vetted CFOs in our talent pool. Get matched and introduced to our CFOs for free.
How to Make the Most of Your CFO
Even the best CFO needs to understand your business before they can help it grow. Following a few simple guidelines can help you get your new CFO up to speed and contributing to your startup as quickly as possible.
Hire from the Right Places
A CFO has some significant responsibilities. When hiring a fractional CFO, you should always start your search with candidates that have already been vetted and interviewed by industry professionals. Shiny has done just that, so you can focus on choosing a CFO with relevant experience instead of worrying about background checks or basic competency.
Set Clear Expectations
Once you’ve found a promising candidate, you need to work with them to see terms that work for both of you. Independent CFOs will have specific requirements for responsibilities, hours, and salary, while CFOs that work through an agency like Shiny will work through agency guidelines. It can help to have a list of expected tasks and compensation prepared in advance to keep negotiations running smoothly.
Finally, your CFO will need to understand your business. Collect your current financial information so they can look at it all in one place. You may also introduce your CFO to other employees, so they know where to get any additional data they need. From there, you can answer their questions and set up regular check-ins to discuss their work; this will keep you in the loop and give them the chance to ask your opinion and offer guidance.
There’s no company too small to benefit from at least occasional CFO services. The expertise that qualifies a person to be a Chief Financial Officer can be useful to companies of any size, but especially to small businesses without a financial history and set method of handling tasks. A fractional CFO is invaluable to most startups, whether they’re preparing detailed and accurate financial statements or providing strategic planning services specific to the company’s situation.
Startup founders already have enough on their plate. If you’re planning on growing soon, adding a fractional CFO to your team can help lighten your load and let you focus on the important things. You can rest easy and work on developing your offerings and finding new customers. Contact the Shiny team and let us know what you’re looking for in a CFO so you can get down to business today.