The Startup is one of the most commonly heard terms in business in recent times. The picture that comes to our mind about a startup is one or two people in a garage ready to change the world with their ideas but on a shoestring budget. This is true in most cases. Any business or startup will benefit from the services of a CFO. It comes with a price tag many, at their starting stage cannot afford. Does a startup need the insights and talents of a CFO? If so, when is the correct time to avail of their service?
To answer the above questions, we need to understand a startup more closely. Most people consider a small business as a startup. The definition of a start-up, as per Wikipedia, is a young business with a repeatable and scalable business model. A business model is the company’s plan for making a profit. In simple terms, it is a new business venture with unique properties and has scalability in its vision. As per start-up guru, Steve Blank, there are six different genres of startups. They are lifestyle, small business, scalable, buyable, big business, and social.
The need for CFO depends on the type of startup and the different stages of a startup. They start from the pre-seed stage, which goes on to the seed stage, early-stage, growth and expansion stages, and finally the exit phase from a startup to a large company. These are quite textual for a person to recognize while running the actual business. Here we will look into the practical indicators that show that the startup needs a CFO’s knowledge, experience, and skill.
Indicators on when a startup needs a CFO
Financial matters have dynamic characteristics. There is no one size fits all solution to financial issues. The success of the startup depends on effective finance management. The need for CFO services may come at any stage of the startup. Bootstrapped startups are in plenty, so it is difficult for them to employ a CFO. The different ways in which the startups can benefit from a CFO are:
- Forecasting
- Modelling
- Analysis and reporting
- Risk management and mitigation
- Market trend analysis
- Strategic planning, etc.
As discussed above, there are no hard and fast rules to understand that the startup needs a CFO. It depends on the perception or intuition of the startup owner to decide that. Any of the below situations may show to the startup owner that it is time to hand over the financial reins to a CFO.
If it is difficult to understand the financials
Every startup owner need not be a financial whiz. It is not everyone’s cup of tea to interpret the financial reports. When things get blurred, it will be wise to give the work to a financial expert. This can happen at any stage. Let us assume the situation when a startup owner cannot explain his business idea in financial language. A CFO must come on board at the seed stage then.
If your startup has a growth spurt
Remember the proverb, ’make hay while the sun shines.’ The growth of the business brings with it good investment possibilities and new opportunities. The risks and financial viability of each investment and opportunity have to be explored. Failing to do this can bring down the venture.
If you are wary of the risks attached
This may sound like a continuation of the above, but it requires a special mention. The startups may be aware of the risks, but inexperienced to manage or mitigate them. This is when the experience of a CFO comes in handy. The risks may be in any of the stages but they will increase in the early-stage, growth, and expansion stages.
If the business needs contacts
A CFO brings with him a wealth of diverse experiences, skill sets, and a network of contacts across the industries. Any startup will benefit from this rich network of contacts. This will help in diversifying the investment opportunities and in increasing the customer base.
If the finance team need restructuring and leadership
A CFO will set the tone right for the finance team to work according to the vision of the startup. Rectifications, modifications, and fine-tuning will happen smoothly under the eagle’s eye of the CFO. The analysis and reporting to the leaders are crucial for the business to grow. A CFO ensures the team and the leaders know the key performance indicators.
The above is not an exclusive list of indications. Some issues can be solved by an accountant or a CPA or a controller. It is the discernment of the leader to choose which service the business needs at the moment. Diligen has an umbrella of services that can be customized to cater to the needs of the startup. The virtual CFO services will provide the guidance and support required for the startup on its path to success.
