Why Your Startup Could Use a CFO

Starting your own company is no small feat. You deserve to profit from all investments you make in this endeavor. That includes investments of your time, energy – and yes, your money. 

In fact, it’s worth noting that staying on top of your finances from the get-go could make or break the success of your business venture. That’s why so many new businesses need to consider hiring a Chief Financial Officer (CFO) as soon as they can. 

If you’ve been going back and forth about the value of hiring a startup CFO, you’ve come to the right place. Detailed below is everything you need to know about why your startup needs a CFO even before your first year of profit. Your CFO will actually ensure the profitability of your company from its initial launch. 

You don’t need to find and hire an in-house CFO, though. Even reputable business experts suggest that outsourcing your CFO for a startup company can be wise. That way, you get all of the financial expertise without stressing over recruitment and hiring. 

All in all, you need the right people on your startup team. Keep reading to learn why a CFO will be essential.

The Basics of CFO Responsibilities

No matter what products or services your startup sells, your top priority is always going to be the bottom dollar. Well, that leads to the fundamental responsibility of any startup’s CFO. They need to be able to sustain present profit margins and further their growth throughout the future. 

It’s true that your hired CFO will work through their day-to-day with the “big picture” in mind. Your CFO will need to have a thorough understanding of your company’s short-term and long-term financial goals. Then, they will be able to keep operations and the budget on track to meet those goals. 

In order to accomplish this, they need to have a close eye on the organization’s everyday operations. How are the materials or merchandise getting sourced, and what are their costs? Are there ways to save money by cutting other costs throughout production?

Answering these questions will help your CFO service design your financial strategy. It’s worth noting that digital CFO-based solutions are helpful for startups to keep their finances on track. These digital solutions, of course, will go alongside the in-depth insight of the qualified experts (the human CFOs) behind the scenes. 

The Right CFO Will Fill Many Roles within the Company

Not only will your startup’s CFO evaluate and manage finances on a regular basis. In addition, there are other roles that can easily be incorporated into this position – especially if they’re doing a thorough enough job. So, it’s important for an effective startup CFO to be flexible and able to fill any related responsibilities as needed. 

For instance, a proper CFO should have a decent knowledge base in managing human resources (HR). After all, employee payroll is usually the largest company expense. It’s up to your CFO to evaluate which roles might or might not benefit the overall seamlessness of production.

A good startup CFO is also going to need a basic legal background to be effective. As your company continues to grow, so will the compliance factors that could affect your operations. In order to meet these compliance standards, you need an expert. 

That expert, by the way, should be hired as an existing third party as opposed to someone you have to train on your own. Let’s take a closer look at why.

Hiring a Third-Party CFO Service Could Be in Your Best Interest

The best business leaders know that they need to surround themselves with the most qualified team possible. This includes both management positions and other employees. Sometimes, though, hiring directly for every role you need in your organization can be too time-consuming or difficult to be worth it in the long run. 

That’s why many smart business owners look to third-party services. The benefits of outsourcing some positions within your business can often outweigh the upfront costs. 

Think about how nice it would be to have a financial expert on hand. Now, think about the daunting task of recruiting, hiring, and training just the right CFO. You’d want to ensure they’re both qualified and dedicated to your company – for many years to come. 

We’re talking about hours and hours of time and energy spent on hiring for this top-level position. Not to mention, these relationships don’t always work out, so it could be time wasted!

Instead, working with a reputable third-party service can give you access to financial expertise way sooner. Plus, you can customize what level of service you might need. 

Not ready for a full-time CFO? Hire a third-party service to handle specific financial tasks at first!

Don’t Work with Just Any Outsourced CFO Service, Though

Of course, it’s going to be your responsibility to do plenty of research when it comes to hiring an outsourced CFO. The unfortunate truth is that there are plenty of financial services out there that would likely end up being a waste of your money. 

Consider this fact about tax preparation services throughout the United States – which is only a small part of a CFO’s job responsibilities. Already in the year 2022, this industry has a net worth of over $11 billion. Plus, this value is only expected to grow in the upcoming years. 

In other words, it can be challenging to navigate the vast world of professional financial services. Take the time to check up on your potential CFO before you actually sign any papers. You deserve the peace of mind that comes with knowing your hired CFO service is a reputable one you can trust with your organization’s success. 

One great way to evaluate a potential CFO service is with a free consultation. Use this meeting to ask as many questions as desired for determining the experience and knowledge of the CFO in question. Then, you can make a smarter decision and start investing in your company’s success. 

Who Will Your Startup’s CFO Report To?

Now that you’re considering hiring a third-party CFO service, what should you expect? To be more specific, how will this CFO position function within the blossoming startup company? Well, the most accurate answer to this might be: it depends. 

Another benefit of outsourcing your CFO needs is the fact that you can, in a way, customize the relationship dynamic. It’s possible that you only need to hire this financial expert for specific tasks (at first) – not a full-time oversight role.

For instance, you might just need a reliable financial expert to work on tax planning this year. Later on, your financial management needs will likely grow, so your relationship with this third-party service can grow, too. 

Remember that you can work with your new CFO as closely as you want. Of course, the main goal of hiring someone in this position is to relieve yourself of financial stress. Don’t be afraid to trust your new CFO with the reigns of your organization’s money management. 

Traditionally, CFOs report to the CEO of a company, and that’s about it. When the position entails managing the big picture, as mentioned above, it’s important to allow them the freedom to act in the best interests of the startup.

How Your Organization Might Benefit from a CFO Sooner Rather Than Later

Too often, companies will put off considering hiring a CFO. This is a mistake, though. The sooner you get your financial situation and planning in order, the sooner you can look towards higher net profits.

You might think it’s worth waiting for your startup to eventually go public. What about forecasting when it might actually be ideal for your organization to go public? What about tracking expenses to ensure your company won’t flop before then? 

Don’t forget that a CFO’s job is about more than just finding funding and concentrating strategic sales efforts. They should also look at reducing operational expenses. This could likely mean focusing on any part of day-to-day operations that could be a waste of money.

All of these profit-increasing strategies take time to evaluate. So, it’s smart to start thinking about hiring a qualified CFO sooner rather than later. Doing so is your best chance to improve that bottom line and look to more success throughout the future. 

Again, your organization is going to have financial management needs specific to you. It’s important that you communicate clearly with your potential CFO so that these needs are efficiently met. 

The Hierarchy of Your Organization’s Financial Needs

Every kind of business makes use of the same basic hierarchy of financial levels. Learning about this concept might help clear up what parts of your organization’s current financial status need some attention. Plus, these principles could show you exactly when it’s time to hire CFO services for startups.

1. Consumer Transactions

At the core of your business, you’re relying on selling products or services. Every time your team makes a sale, it’s something worth celebrating. Consumer transactions are easily handled by many modern Point-Of-Sale (POS) systems.

As for expenses, it should be just as easy to keep track of every product, utility, employee paycheck, or other expense get covered by the startup’s bank account. In essence, anything that is purchased for the sake of the organization should be recorded.  

Combining this bottom level of money coming in and money going out is the foundation for all other business financial strategies. Not tracking these transactions properly can be a huge mistake for any business. All of the other hierarchy levels will suffer accordingly. 

Even the most basic business, such as a taco stand, should be able to handle and track these amounts one way or another. An educated CFO isn’t necessary at this phase of your business. 

2. Strategic Record Keeping 

Going another level higher, what can we do with the total incomes and expenses? Well, this is where more detailed bookkeeping techniques come into play. Instead of simple addition and subtraction, bookkeeping goes a step further and evaluates where and how the startup’s income is getting spent. 

For instance, bookkeeping can help budget for paying off debts or unexpected maintenance costs. In that regard, this component requires some level of knowledgeable foresight. 

Bookkeeping is also important for monthly budgeting and employee retention. This part of the financial hierarchy requires more specialized knowledge to set up data-driven reports and communicate with management as need be. Still, it can be done without the help of a full-fledged CFO on hand.

3. Proper Financial Reporting

Over time, your startup will (hopefully) grow to the point where it has multiple functional departments independent of each other. This is when the value of regular financial reporting can be so useful. 

You might have incomes and expenses specific to the Sales Department. On the other hand, your HR team doesn’t bring in any income – but they’re still necessary to the overall company. This stage of your business’s growth will require a way more in-depth budgeting system than regular bookkeeping. 

Understanding successful financial reporting will require the expertise of a qualified CFO. This involves the “bird’s eye view” we’ve talked about. Your CFO will have to know about all of the moving parts in the organization to ensure every department’s needs are met while also ensuring continued profits for the company itself. 

4. Forecasting and Financial Planning

After plenty of research, your CFO will gain a thorough understanding of every component of your organization. Then, they’ll be able to use that data for its betterment. 

Forecasting involves two main components: the financial reporting mentioned above and a detailed market analysis. The skills required for this level of a business’s financial hierarchy differ from basic accounting manipulation. Your CFO will need to have a pulse on everything going on in the world that might affect your company’s net worth. 

Accurate forecasting can lead to strategic financial planning, which offers a variety of benefits. For one thing, your startup will have a better handle on preparing for the eventual ups and downs that come with any business model. Your CFO will have a workable plan on hand in the event of any short-term profit loss, so you won’t have to sweat it. 

In addition, financial planning can help you and your employees feel more comfortable with your personal futures. Financial planning can lead to all of those fun benefits such as retirement funds. 

5. Developing Partnerships

When your startup gets to the point where its growth seems exponential, the value of a CFO cannot be understated. You need someone with the know-how and passion to take your company to the next level.

Whether you’re looking at international expansion or other ways of scaling your business, you need a reliable CFO as a partner. Their existing industry network of profitable relationships and familiarity with the specifics of your startup will be essential for moving upwards in the game. 

Your Startup’s Initial Financial Systems Will Affect Everything Else

The sooner you invest in startup CFO services, the better. After all, everything you and your CFO work on will affect the entire future of your organization. 

This is yet another reason to trust a third-party CFO service that has plenty of experience. Their initial formative financial strategies can affect everything else. In fact, building these infrastructures is part of their overall responsibility. 

Your monthly and annual budgets, for instance, are going to be set according to your new CFO’s expertise. Perhaps they suggest increasing spending on marketing in relation to modern trends.

It’s important that you trust your CFO’s insight and judgment in these cases. Their guidance might be your best bet to ensure your startup’s success. Still, that doesn’t mean you have to be completely out of the loop. 

If you set up any new systems or production processes, make sure your CFO has good reasoning for it. If your CFO has suggestions about reorganizing your team of employees, it’s your right to ask questions as to why. It’s important that you work closely with them to ensure your organization’s needs are met and goals are achieved.

Work Closely with Your Hired CFO to Meet Your Business’s Unique Needs

At the end of the day, your hired CFO can only achieve the goals and initiatives you communicate with them. It’s, therefore, on your shoulders to ensure your new CFO has all of the information they need to do their job well. 

Be prepared for a lot of initial meetings when you start working with a CFO service. Hopefully, you already have defined the core values of the company as well as targeted short-term and long-term profitability goals. Sharing these concepts will allow your CFO to incorporate practices and make key decisions to keep the organization on track. 

While your experienced CFO has likely worked with a business similar to yours, remember that you’re still unique. For instance, are you insistent that sustainable and eco-friendly practices are maintained? Is there a specific business relationship you want to maintain no matter what?

Your organization deserves dedicated attention to every level of operations. That’s the only way to ensure your startup is functional at its ultimate productivity from the very beginning. 

Raising Capital for Your Startup

Take a look at this other key benefit of working with an already experienced CFO instead of a newbie you hire. When you work with an existing reputable CFO service in your industry, they should already have a solid network in place. They likely know all of the major figures in your local area or niche market. 

This is going to be invaluable when it’s time to seek funding for your startup. Raising capital is perhaps the most critical part of any startup’s long-term success. If your CFO on staff is starting their relationship-building from scratch, you’ll be behind market competitors. 

Remember, your hired CFO will have worked with you closely on the company’s sales goals as well as what’s going on within daily production processes. This knowledge will also help them forecast exactly what your funding needs might be.

Then, they can get the details together and craft the perfect pitch for convincing potential investors. This might be one of the most valuable assets of a hired CFO for your startup. While there will be an upfront cost to working with them in the first place, this investment will return for your benefit dramatically. 

Soft Skills That Are Essential for Effective Startup CFOs

Since the best-trained CFO professionals have to be flexible with their job responsibilities and roles, so do their skill sets. Let’s take a look at some of the “soft” communication-based skills your qualified CFO should have. 

Core leadership ability is a must for an effective CFO. If they’re going to encourage and coach your team of employees to optimize productivity, they need to command the respect of the office. 

Of course, that doesn’t mean they need to be too authoritative or egotistical. Rather, your CFO should exhibit positive encouragement to further the morale throughout the office.

Never underestimate the power of happy company culture. Your CFO should happily contribute to that culture. After all, a happy workplace leads to higher productivity among employees – which then leads to higher profits over time.

Being detail-oriented, analytical, and a good communicator are perhaps more obvious characteristics of a high-value startup CFO. All in all, you should view your hired CFO as a partner in the business endeavor you’ve organized. Working with this dedicated partner should feel like the ultimate investment of your time. 

Find and Hire Your Ideal Startup CFO Today

It’s time for you to put action into your potential investments. If you want your new business to have its best chance for profitable success, you need to be willing to work with a startup CFO.

Not only will these experts ensure your startup’s finances are stable and manageable. In addition, a proper startup CFO will help you turn your existing capital into long-term wealth and success. 

That’s where our team can come into play. We work with startups like yours to find their unique financial strategies. Contact us about our reputable CFO services at your convenience.