Why Hiring a CFO is BEST for Your Startup Business

by Ina Masten, Founder of Masten Solutions

In the dynamic realm of startups, every decision counts, every resource is precious, and every opportunity is a potential game-changer. Amidst the hustle and bustle of entrepreneurial endeavors, one role often overlooked but undeniably critical is that of the Chief Financial Officer (CFO). Though the traditional image of a CFO may conjure images of corporate boardrooms and multinational giants, the reality is that their expertise holds significant value, particularly for emerging startups grappling with the pathways of expansion and sustainability.

But before we explore how a seasoned financial expert can ignite the growth and sustainability of your startup business, let’s first discuss the Lifecycle of a Startup.

5 Stages of a Startup Business’ Lifecycle

The Seed Stage

The seed stage of your business lifecycle is when your business is just a thought or an idea. Most seed-stage companies will have to overcome the challenge of market acceptance and pursue one opportunity. Don’t try to take on too much at once.

At this stage of the business your focus should be on making sure your idea works well with your skills, experience, and passions. You’ll also need to decide on a business ownership structure, come up with a business plan, and get funding.

You might be able to self-fund your business, get investments from friends and family, or apply for government grants. If you have some sort of existing client base for your business already, you may be able to get them to invest.

The Startup Stage

Once your business legally exists, you’ll need to make sure you can provide whatever products or services you’re planning on selling, and establish a customer base and market presence. You might need to change your business strategy or raise more cash if your expenses are higher than anticipated.

The Growth Stage

If your business is growing, that means that your revenue and customer base are also likely growing. You might need to hire and train new employees to handle with the additional workload that comes with a growing business.

At this point cash flow will become an important metric for a business owner to know as well as your burn rate – What Is the Right Burn Rate for Your Company? Regardless of its situation, any company should have a burn rate that ensures at least six months of cash runway. Any less than that, and you may not be ready for unexpected changes in revenue or spending (that’s why it’s so important to learn how to calculate it)

The Established Stage

It’s still a lot of work to maintain your business once it’s become self-sustaining or even profitable. Make sure you’re maintaining or growing your revenue stream by keeping up with any new developments in the industry or changing customer preferences.

The Expansion Stage

If your original business is doing reasonably well, or if it can’t grow anymore without a new customer base, it may be time for the business to expand into a new market. In some cases it may be easier for you to expand into a small, niche market, because a larger market is likely to be more competitive and may take longer to break into.

Make sure you do plenty of planning and research before deciding where to invest your resources. You may want to focus on markets that are related to your existing business.

If you can, you’ll also want to consult with a tax expert or financial advisor while closing out your business. That way you can make sure you’re meeting all of the necessary requirements.

Role of a CFO in a Startup

If growth is the goal of your startup, engaging an expert in finance early on is critical. By bringing a fractional CFO on board from the beginning, you provide them with a clean slate to implement effective financial processes which will become prudent when time for reporting and analysis. This not only prevents the need for later intervention by a financial management expert to modify or correct inadequate or improper accounting practices, but it also significantly increases your chances of long-term business stability. Keep in mind 20% of startups fail in their first year, and 50% fail by year five.

A CFO fills four vital roles within a new company:

  • Steward: establishing controls and processes to preserve the company’s assets and minimize risk
  • Operator: developing processes that ensure efficient, effective financial and business management
  • Strategist: working with the CEO and other key players to devise overall corporate direction and strategies and make sure operational and financial strategies are aligned
  • Catalyst: creating long-term value for the company through a finance-based approach that supports comprehensive business performance

For many startups a full-time CFO with a big price tag is overkill. A fractional CFO provides flexibility and allows you to increase or decrease your utilization with that person as your needs change. 

Success at Startup Is All About Proper Scaling

With that in mind, here’s how a fractional CFO can specifically benefit your startup.

You can’t do everything immediately

A fractional CFO relieves that self-imposed pressure by helping you determine what makes sense to do right now versus what can wait. There are things you should do—or must do—up front, and you want to stay focused on those essentials, not weaken your results by taking on too much too soon. 

Hiring efficiently and effectively

You need great people to support fast growth. However, over-hiring wastes precious startup resources, and in your haste to staff up you could easily pick the wrong people. A fractional CFO can help you balance the need for key expertise with the need to maintain a lean team by explaining what is considered “industry standard” and best practices for startup hiring.

You can secure the talent you need right now to properly establish both the financial and operations sides of the business.

Affording growth

It takes more than a big infusion of cash to establish and sustain a fledgling business. Far too many small business owners do not fully understand that finance and operations are inseparable. In fact, US Bank reports that 82% of business failures are due to poor cash management or not understanding how cash management affects the business. A fractional CFO can help translate your entrepreneurial vision and passion into strong management practices.

Key performance indicators

Appropriate metrics are critical to monitor your business day in and day out. But you also need to consider metrics that matter to outside interests such as investors. A fractional CFO can help you create and use a dashboard, balanced scorecard, and other tools to accurately assess business status and progress.

Internal controls

Establishing internal controls, especially for expense management, is essential to produce accurate financial data and minimize risk. Starting a business is capital-intensive, so you should conserve what you have, spending wisely while you work to build revenue. You don’t want to be so conservative that you smother growth opportunities, but you do need policies in place to prevent overspending.

Because startups face high costs and low revenue generation, a fractional CFO will help you manage both revenue and expenses to ensure financial stability to keep growing and make sure you are not growing broke.  

A Fractional CFO can be your “Secret Weapon” to the success of your Startup!

Ina Masten, Founder of Masten Solutions

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