CFO for Start-ups:

Have you ever looked at the Financial Deck (P&L, Balance Sheet and Cash Flow) as founders and wondered what do you need to look at? Well, this a problem to start with but, have you ever looked at these and wondered why are the results different from what you expected them to be? This is a much bigger problem then.

In the fast-paced world of start-ups, hiring decisions can make or break a company's trajectory. While technical talent and product development often take the spotlight, the importance of hiring a senior finance professional early on should not be overlooked.

Most start-ups hire a junior accountant or an accounting firm to take care of their accounting and compliance burden since this is the most cost-effective solution. You may however quickly realize that this model is not scalable especially if you want to build a business for scale. Your accounting partner probably does not have the strategic outlook to help build a framework which is scalable and is able to help the founders understand the financial discipline required for it to grow. Some founders, who have strong finance and accounting experience, will find this ok, but that’s probably a 2^nd mistake. As founders, its probably not the best use of your time to create a framework for accurate accounting and reporting as it is to build the business.

Lets now look at the focus areas of a CFO for start-ups:

1. Accounting, Tax and Audits: The CFO has to ensure that the company’s financial statements are accurate and timely and that all statutory compliances are well taken care of. While most of these can be taken care by accounting firms, this is only one aspect of the CFO focus area and you will soon realize how important this area is and how it impacts some of the other strategic focus areas.
2. Financial and Business Metrics: This is one of the most important focus areas for any CFO and more importantly should be one for founders as well! You can identify and understand a lot more about your business if you have the right set of reports and business metrics and you will be able to improve the quality of business drastically by keeping a close watch on these and keep improvising these based on your requirements. Unfortunately, reporting and analysis is not a stand-alone pillar and the need for accurate granular data is interdependent with other focus areas (We will talk about this in detail in the next blog)
3. Financial forecasting and budgeting: The CFO is also responsible for creating a detailed financial plan, to help guide the companys growth strategy but then to also have benchmarks defined to understand when there is a need to course correct to remain financially on-track
4. Cost and Cash management and reporting: Start-ups generally have limited cash (especially during the times like these when fund raising and valuations are not optimal) and its extremely important for the organization to have a full understanding of where they are and what to do they need to do to remain in operation. Controlling cash burn becomes a very important focus area of a CFO and all business should aim to find a balance between business growth vs cash burn. A path to profitability becomes extremely important for a lot of business which is probably understated and underrated when there is a free flow of money
5. Business Strategy and Risk Management: The CFO is expected to work closely with the founders to define future strategy and manage risks as a part of that strategy.
6. Investor Relations: The CFO should be the face of all your financial discussions with the investors and the investors should be kept updated with the companys financial performance and the future plans (especially if it forms part of your SHA).

While these are the top focus areas, I am sure there are others as well which are important, like regulatory and statutory compliances. You may notice that there is a lot of interdependence between each of the focus areas and which is why you need a CFO to make sure all focus areas are adequately aligned.

While early stage start-ups may find it tough to hire a full-time CFO due to cost and talent constraints, a fractional CFO solution is the answer to ensure the focus on finance as a strategic partner is activated and you are tuned-in for scale.