In the life of every business comes a point where that business needs to get serious about its financials.
Maybe that point has come because you're about to raise your first large funding round, or because your turnover has reached a point where you can't confidently manage the accounts yourself.
If you're reading this article then you're probably at or near that point, and wondering: do I need a CFO?
Do I need a CFO?
Having a CFO in place at your company can provide a range of benefits.
It's not just about having some there to look after the day-to-day tasks, like bookkeeping and accounting, but also to help direct the company's broader financial strategy. A good CFO will allow you to make financial decisions today that will help your company's growth in the longer term.
Examples of the things that a strong CFO will be able to help with are:
Having a CFO means having someone with a strong interest in helping you grow your revenue. This often comes from looking at the business top-down, and judging how different decisions (pricing, offers, retention) affect top-line revenue.
Owning cash management
This is one of the responsibilities that tends not to get picked up in businesses without a CFO, despite being vital to driving growth. A CFO can help you plan cash management so that you can grow as quickly as possible within your cash flow constraints.
Assisting with fundraising
A good CFO should have experience with taking companies through fundraising rounds, and will be a great asset to have onboard the next time you're looking to raise. They can help not just with preparing all the relevant financial material, but also with knowing exactly what potential investors will be looking for.
Managing your models
Another critical task that tends to fall by the wayside at most early-stage companies is financial modelling. A CFO will own your financial models, so that you always have an up-to-date view on where your company is heading financially.
Do I need a CFO for this?
Don't get me wrong, none of the above are rocket science; they're all things that a CEO could do. Realistically though, few CEOs are as experienced or proficient in these areas as a trained CFO and, given the CEO's other priorities, they tend to fall by the wayside.
Because of this, it can often be a good decision for companies to search for a CFO before they even think they need one. By the time a company needs a CFO, the company has likely already missed out on many of the benefits of having a solid financial strategy in place.
Should I hire a full-time CFO, or outsource one?
Even if you've already decided that you need a CFO, there's still one question left to ask: should you hire a full time CFO, or outsource one?
Naturally, there are benefits that come with having a full-time CFO. For instance, a full time CFO will come to know the company's financials like the back of their hand, and may be able to more proactively steer company strategy as a result.
At the same time, bring a full-time CFO on board comes with a cost. Not just the immediate salary cost, but it's also worth bearing in mind that a reputable CFO may ask for a non-negligible chunk of equity in order to join.
Even if you are prepared to offer a sizeable salary and equity grant, you may find it difficult to actually tempt CFOs to your business. The best CFOs are often wary of the risk associated with joining a start-up or early-stage business, and so may prove difficult to recruit.
Because of the challenges associated with hiring a full-time CFO, many early-stage businesses take the decision to outsource their CFO position. This involves contracting with an individual part-time, for them to manage your business's financial strategy.
Having an outsourced CFO comes with a number of key benefits:
Because an outsourced CFO doesn't work full-time, their total compensation will naturally be far lower. Though their hourly rate may work out the same (or slightly higher), it's worth bearing in mind that an outsourced CFO will be focusing on the most mission-critical projects in the hours they work, so you'll still be getting a great deal from working with them.
No equity expectations
Again, because an outsourced CFO isn't a full-time employee, there's no expectation for them to receive any equity in exchange for their services. Because equity amounts often need to be quite high in order to attract experienced CFOs to an early-stage business, this could prove a valuable saving in the long-term.
Most outsourced CFOs have a diverse range of experiences to call upon, from working at a wide variety of different (and often early-stage) companies. This can make them better suited to working at you company, in comparison to someone who has spent their entire financial career at maybe one or two firms.
Outsourced CFOs are often referred to as interim CFOs, reflecting the fact that many companies use them until they're in a position where they're confident that they need a full-time employee looking after their finances. This means that most outsourced CFO contracts are inherently flexible, and can be adjusted to suit your needs.
Given the benefits above, having an outsourced CFO can often be a great first step for companies that want to get serious about their financials, but who aren't ready to commit to hiring a full-time CFO.
How do I find an outsourced CFO?
Interested in learning more about how to hire an outsource CFO?
Take a look at out CFO-as-a-service offering, where we take care of your finances for a fraction of the cost of a full-time hire.
We work with a range of CFOs who are experienced with all major accounting platforms, and financial modelling techniques, so you can go back to focusing on your business.