Do You Need A CFO?

Published on 16 Sep 2022


The benefit of a full-time CFO for fledgling businesses is widely argued. At the core of the discussion is the trade-off between the (not insignificant) price of hiring a professional CFO at such a premature stage and the value that person is supposed to convey in terms of growth, strategy, fundraising, and operations. Adapting aspects from Maslow's Hierarchy of Needs for this purpose, Toptal Finance Expert Scott Brown provides a novel framework for how companies could consider and make this choice.

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The Great Argument

The importance of a CFO to a fledgling firm is a contentious issue. Many say they are needless additions and that a small, knowledgeable, and well-trained finance staff can meet the organization's demands. CFOs, on the other hand, have a broader and more strategic financial viewpoint that may aid businesses in planning for the future and optimizing existing operations.

The essence of the dilemma is that CFOs provide substantially more value than a "junior" finance staff, yet they are costly resources.

For a firm to effectively traverse this conundrum, it must first comprehend the roles, requirements, and pathways it is likely to confront. Eventually, most successful organizations will exceed their original accounting team and need deeper ranks as the number of financial function dimensions increases. If organizations know their final demands in advance, they have several options for mitigating risk and acquiring what they need without overcommitting financially.

In more than 15 years of experience as a finance director and financial consultant, I've discovered that the best method to determine whether or not a firm needs a CFO is to evaluate where they are on the "ladder of demands," which I'll describe below. The subsequent study will assist companies in determining their position in the organizational hierarchy. It will serve as a guide to recruiting alternatives that best meet their present requirements and how to advance to the next level. The real issue may not be how long you can endure but rather how quickly you will begin to profit from the contributions of a seasoned financial leader.

Which Capabilities Should You Consider When Hiring a CFO for a Startup?

As previously discussed, the question of whether and when to engage a CFO for a company is complex and uncertain, based on aspects that only the business's founder and the board can balance and evaluate. Once a choice has been made, however, most first-time entrepreneurs find the process challenging to traverse. Specifically, without previous awareness of the complexities of a CFO's function, duties, and credentials, most startup owners often spend months groping in the dark.

The first recommendation is to select/appoint an advisory board member with extensive knowledge in this field. Specifically, a person close enough to you and your business to properly analyze its stage and requirements (both present and future) and who has the expertise to match them with the credentials, temperament, and skill/risk profile of a possible CFO. Too frequently, navigating this process on one's results in costly errors, particularly considering that skilled CFOs are not inexpensive, and in the worst-case scenario, this may be disastrous.

Beyond the direct direction of a consultant, the following qualifications/skills obtained from your  own experience should be considered when evaluating your available pool of CFO candidates:

Capabilities in Forecasting, Modeling, and Analysis

Your CFO must be well-versed in budgeting, forecasting, financial modeling, and returns-profiling analysis, in addition to the normal credentials and experiences for the position, such as an MBA or CPA. These competencies are essential for any effective/value-adding financial operation.

Strategic Vision and Judgment

Alongside the founders and board, your CFO must also be forward-thinking and a catalyst of strategic thinking and development. If feasible, they should have a track record of value-creating activities or experiences that they can refer to. They should come to the interview clearly understanding the opportunities they see for your organization and the corresponding execution plans. Solving for these attributes may accidentally eliminate the risk-averse, innovation-stifling "no-men/women" who are so often associated with the CFO position.

Risk Assessment + Mitigation Skills

Even on a good day, startups are tumultuous, unpredictable vehicles continuously navigating a sea of destabilizing factors. As a consequence, a substantial portion of your CFO's responsibilities will be identifying and managing risks while maintaining a foot on the throttle.

Balance, Discretion, And A Solid Moral Compass

An excellent CFO must also have a healthy growth mindset, a thorough understanding of the profitability-driving levers, and be a captivating communicator with facts and analysis. These characteristics will be especially important during fundraising and investor reporting times.

Capability To Construct And Administer An Agile Infrastructure

A CFO of a startup must be able to construct a lean financial structure from scratch, particularly in a dynamic, rapidly-changing environment.

Cognitive and Physical Dexterity

Depending on your business's stage, your CFO should be a jack-of-all-trades or generalist who can fulfill several positions inside the organization. This will improve the return on investment for the person in question, particularly if this is the deciding factor in recruiting.

Five Questions to Consider When Establishing a Financial Function

Aside from capabilities, there are several other (crucial) factors that I recommend every company entrepreneur to consider when determining how/when to staff the financial function:

Will you seek external investment? If so, it is crucial to implement the appropriate accounting procedures and rules as soon as feasible.

Is your company undergoing fast change? A transactional mentality centered on the past will be incapable of seeing opportunities and risks. Moreover, as the firm evolves, the accounting procedures may also need modification.

How proficient are you in financial management, and how much time can you devote to this? Even if you are excellent in accounting and finance, every hour spent on money is at least one hour you cannot devote to your area of expertise.

How much financial cushion can you afford to maintain in case of unforeseen circumstances? With less visibility and preparation, there are more and greater shocks. You will need a higher monetary cushion.

How complicated are your processes? Like machines and the vast majority of other things, the more complicated your operations and finances, the more talent and experience your organization will need to record, report, and prepare appropriately.

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The Right Startup CFO

In the end, only the company's founder and the board can choose if a firm should recruit its first full-time CFO. Nevertheless, hiring a company's first CFO frequently signifies the company's readiness for a more advanced, specialized level of management, strategic planning, and operations.

Remember, when you begin your approach, the ideal startup CFO will be able to navigate between strategy and execution, contribute strategic direction and enthusiasm to the firm, and add value beyond his or her unique function or job as the company expands.


Featured image: Image by Freepik


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