There comes a time when every growing startup needs to decide whether they should bring their finance operations in-house and hire a CFO. In this context, we're referring to any finance person doing CFO-level responsibilities in a startup because titles may vary. For semantics sake, we're referring to the most senior finance hire in the company.
Why a Startup Needs a CFO
The expertise of a CFO allows for informed decision-making, which significantly impacts the startup's direction and business trajectory. Some key benefits of hiring a CFO early in the startup process include assisting with fundraising, cash flow forecasting, budgeting, board reporting, SaaS management, streamlining processes, and increasing profitability.
When to consider hiring a CFO
Starting with a virtual CFO might make more sense in the early stages of a startup, such as the pre-seed and seed. They can handle basic financial reporting while allowing the company to focus on its core business. However, the need for an in-house CFO becomes evident as the startup matures and its operations increase in complexity. As a benchmark, this is typically when a company generates north of $1M in annual revenue.
What skillset you are looking for when hiring a CFO
When hiring a CFO, it's essential to consider the specific expertise required. Here are some questions to ask and things to consider:
- Building a team: Have they been in a leadership finance role before? Have they built out a finance function?
- Board experience: Have they been a board observer or been involved in the reporting for a listed or private company?
- Leadership team: Have they been in the leadership team of their previous company? Do they know what good operations and processes look like?
- Reporting: What are the month-end obligations? Are they being handled in-house or by an outsourced bookkeeping firm? Typically, your CFO won't be hands-on for the whole month-end process. You don't need a CFO if this is what you require.
- Software: Is there a process for SaaS management? Has the company been tracking software on a spreadsheet, or perhaps nothing is being done to monitor SaaS spending?
- VC-funded: Are you planning on raising capital soon? If so, look at someone with experience raising money, managing cap tables, and preparing data rooms. For most startups, opting for someone from an investment banking background as your CFO early on is the wrong move (unless you plan to list in the next 12 months).
- Non-VC backed: Is managing the cash flow your company's top priority? What size companies have they worked in previously, and do they have the right industry expertise to add value? Previous industry experience isn't always necessary, but similarities in industries do help e.g. if they haven't worked for a startup and they aren't familiar with terms like burn, MRR, or churn, they aren't the right person.
- Understanding the numbers: Do you need help making sense of your monthly numbers? Are you profitable but losing cash each month?
- Financial models: Do you want to improve your budgeting and forecasting process to better understand inventory or future cashflow issues that may arise?
Scaling operations globally:
- Multi-region and tax experience: Are you expanding globally, or do you already operate in more than one region? Your CFO doesn't need to be CA/CPA qualified in multiple countries, but they should understand the complexity of operating in multiple regions.
Implementing a startup CFO playbook
Having an in-house CFO is a big first step for a startup. You will receive a new perspective and expertise as they roll out their startup CFO playbook to help you streamline your operations. In the first 90 days, your CFO will review all aspects of the business to understand how the company runs, where the pain points are, and where their expertise will add value. When hiring for this role, you may have some ideas on the pain points, but it's crucial that the CFO has buy-in and is engaged in the projects they undertake.
The CFO's role in reducing cost
When a CFO joins, one of the first tasks is tracking expenses, understanding what SaaS is used, and how the costs will change over time. SaaS management is typically overlooked because it's hard to know what the ROI is on your time. Luckily, Hudled can do this for you without the overhead. Get started for free with Hudled and request a SaaS audit.