A CFO for Startups: Can We Afford That? (Pros and Cons)

Building a startup from the ground up is an incredible venture; it takes a ton of work from day 1. You need to shore up your offerings, hire your dream team, and run the day-to-day operations of your new company. 

When it comes to your startup’s critical elements, your business’s finances might be the top priority. Because of this, there will likely be a point when startup leaders and founders want to bring on an executive hire for the financial aspects of their business.

For this, you can hire a CFO. For most, it’s clear that a CFO becomes necessary at one point or another, and there’s typically only one potential downside: the cost.

Hiring one can be extremely costly, especially if you’re looking for a full-time CFO. The average salary for a CFO in the United States was $421,600 in December 2022, and they can make as much as $530,000+ per year. This might seem like an impossible bill to foot for fast-growing new startups or at least a risky decision.

Here’s how you can decide if your business can afford a CFO for startups and what your options are in order to bring on the financial expertise your business needs to elevate it to the next level.

What Does a CFO Do in a Startup Company?

In order to understand if your business can afford a CFO, it’s important to understand exactly what a CFO does for startups, as the duties and benefits might differ from other types of organizations.

A CFO for startups provides your business with C-Suite financial and accounting expertise and guidance. They can help startup leaders and founders navigate and shore up cash management, execute critical financial projections, and offer expert advisory during acquisitions. CFOs can also provide investment and financing expertise and assist with financial turnaround.

What Are a CFO’s Responsibilities in a Startup Company?

Let’s dive into the nitty-gritty: here’s exactly what a startup CFO is responsible for. 

Develop Contingency Measures

How well is your startup prepared for financial crises or unexpected financial or accounting scenarios? In a startup, funds are often tight, and unexpected financial scenarios can be rattling, if not devastating. 

But that’s where your new CFO for startups comes into play. Your CFO can develop contingency measures to prepare your startup for different scenarios using advanced risk assessments.

Oversee Cash Flow

It can be tough for startup leaders and founders to track how every dollar and cent is moving in and out of the business. But keeping a watchful eye on it is a critical step for being in a state of positive cash flow (where the startup is earning more money than it’s spending) in order to understand how money is moving and to ensure payments are coming in on time. A CFO for startups can keep track of invoicing and payments, monitor products or features that aren’t performing well, and dive into the nuances of how money is being spent in your business. 

Provide Funding Guidance

For startups, funding is everything. Proper funding at critical moments can be make-or-break for a startup, and navigating the funding world is a beast. 

But your new CFO for startups understands the dynamics of funding and can provide you with expert guidance. They’re on your team and want to see your business succeed during the funding process. 

Create Strategies Based on Data

Your startup’s finances should never be left up to chance. One of the top reasons startups fail is because they run out of cash, while another is because of flawed business models. 

While your product or services might be incredible and your team and business well-structured, you need advanced financial and accounting strategies to ensure the success of your startup. When you bring a CFO for startups on board, they understand how critical financial strategies are to your venture’s success and can create comprehensive systems for your business based on factual data.

Set Up Efficient Financial Infrastructure

In the world of startups, most founders and leaders know what it’s like to be a “jack of all trades.” From jumping in on sales calls to troubleshooting issues, startup leaders and founders typically are used to jumping in at a moment’s notice.

But when it comes to the financial infrastructure of your startup, founders and leaders should turn to the experts. When startups are first created, their infrastructure might be haphazard, and this might work at first. For example, the founder is initially running payroll every month.

Most founders and leaders quickly discover that, at scale, shaky infrastructure can lead to critical issues. This should never be the case with your startup’s accounting or finances. Instead, you can turn to the expertise of a CFO for startups to establish and perfect the financial infrastructure of your business.

Prepare Startups for the Next Level

Running a startup never means just focusing on the “now” and instead on growth and sustained success. In order to take your startup to the next level, you will need executive financial and accounting guidance. Whether it’s budgeting for the future, assisting with investments or acquisitions, or helping guide vital financial decisions, a CFO for startups can help prepare startups to arrive at the future state they dream about. 

Distinguishing Your CFO From a Financial VP

When it comes to a CFO for startups, what exactly makes them different from a VP of Finance? There are some significant differences between the positions, although they have some similarities. 

Firstly, a CFO typically works closely with a startup’s CEO and COO and is focused on developing a big-picture strategy, plotting the organization’s financial future, and masterfully strategizing for financial needs (such as funding). If need be, a CFO will approach investors for more funding or look for other ways to boost revenue.

On the other hand, a Vice President of Finance might focus on more day-to-day tasks, such as payroll and financial reporting. If both of these executives are present in an organization, the Vice President might report to the CFO.

Must You Hire a Full-Time CFO for Your Startup Company?

When bringing on a CFO for startups, most leaders and founders want to at one point or another. But the question remains: is it in the budget? While a full-time in-house CFO might be incredibly costly, the good news is that there are other options available. 

For example, many startups today are turning to outsourced CFO services, which fulfill the same strategic roles as an in-house role. Instead of joining your business as a corporate officer, they’ll work with you on a contract basis. These fractional CFOs can bring the powerful expertise of a Chief Financial Officer to your startup at a price well within budget. 

Key Traits of a Startup CFO

Thinking of bringing on a CFO for startups? It’s crucial to look for key traits that are universal in CFOs and identify what makes one skillful at working with startups in particular. 

Here are some key traits to look for in a startup CFO:

• Vertical: Does your CFO for startups have expertise in your sector, and do they understand the needs of your specific startup? 
• Professional network: A CFO for startups should have a vast network of financial experts to consult with, as well as avenues for future fundraising and investing.
• Personality and communication skills: Your new CFO for startups should not only be a skillful financial and accounting match, but they should also be a cultural match for your startup. Their personality should shine through, and they should have excellent communication skills.
• Positive attitude: Startups are unlike any other business sector in the world. They are dynamic and fast-changing. Your new CFO needs to be able to pivot at a moment’s notice and does so with an excellent attitude. 
• References: Your new startup CFO should have a robust list of references who can attest to their work and vouch for their services. 

 

When Should Startups Hire a CFO?

Deciding when to bring on a CFO for startups is a critical decision because it can deeply impact your business’s financial nature. While it’s never too early to bring on a CFO, leaders and founders need to make sure their startups are well-poised to bring on their new executive and can comfortably afford it.

You’re not alone if the cost of a standard in-house CFO is far too steep. That’s why many startup founders and leaders are turning to outsourced CFO services to get the advanced financial expertise they need for a fraction of the cost.

If you’re interested in bringing on an outsourced CFO to take your business to the next level, we’re here to help. Here at hiline, our financial experts can provide your startup with CFO-level support services exactly when you need them. 

Whether it’s guiding you through fundraising or financial reporting analysis, we’ll take it from here. Get started with our startup accounting services today.

Further Reading

CFO Resources for Small Business Owners

CFO Hiring Guide: How and When to Hire a CFO Small Business CFO Services: A Guide for SMB Founders CFO vs CPA: Which One is Best for Your Business CFO vs Controller: What’s Best for Your Business?

CFO Resources for Startups

8 Signs Your Startup Needs a CFO CFO Role in Series Funding

Outsourced vs Fractional vs CFO: Understanding the Difference

What is an Outsourced CFO and When to Hire One What is a Fractional CFO and When to Hire One What is a Virtual CFO and Should You Hire One?