How Do You Know When Your Startup Should Start Working with a Chief Financial Officer?

From Controller to CFO – How Do You Know When Your Startup Should Start Working with a Chief Financial Officer?

Entrepreneurs tend to use a controller to handle the financial aspects of their business, and frequently are happy with the services they receive. Firms offering these services usually provide solutions that focus on bookkeeping, reporting to the tax authorities, preparing profit-and-loss statements, etc. But do these basic financial control services meet your startup’s current needs, or is it preferable to start working with an outsourced CFO (Chief Financial Officer)?

Looking Toward the Future
If you have a clear idea of where you want to be a few years from now – it is likely that you envision your organization growing and developing. You probably see yourself meeting investors, raising capital, breaking into international markets, or even preparing yourself for an exit.

If these are the goals you aspire to reach, it is important to take into account that these things require strategic planning and the kind of high-level input that a controller per se, no matter how professional, generally does not provide. So, at what point do you need to consider hiring CFO services? To answer this question, let’s first explore the respective work of financial control services and an outsourced CFO – and take a deeper look at the ways in which a CFO can help pave the way toward your startup’s success.

The Financial Controller: Focusing on the Present and the Past
Financial control services are focused on keeping and reviewing financial records and reports. The controller has responsibility for all accounting-related activities, including high-level accounting, managerial accounting, and finance activities. Typically, the specific areas of activity that these types of accounting services are responsible for may include:

  • Preparing and submitting annual tax returns

  • Preparing profit-and-loss statements

  • Consolidation of financial data

  • Editing the annual financial report

  • Preparing and analyzing periodical reports (actual expenses vs. budgeted expenses)

  • Maintaining the financial dashboard report

  • Report to the IIA (Israel Innovation Authority) or any other incentive program

CFO: Long-Term Financial Strategy
While a controller generally is more backward looking, i.e., they involve checking the tax ramifications of what the business already has done – a CFO is focused on three aspects: your financial past, your financial present, and what your business should be doing next. In other words – the work of the CFO looks both backwards and forwards – and takes everything into account in planning your startup’s strategy.

The question is where do you want to be in five years’ time and what strategies will help you get there most effectively? CFOs help startups that are serious about moving ahead rapidly in their growth and development by:

  • Developing long-term financial strategy

  • Financial control, including managing accounting operations – bookkeeping, payroll, preparing tax returns, preparing profit-and-loss statements, and finding ways to reduce the tax burden

  • Defining and tracking your company’s budget

  • Contributing to the development of the company’s business model

  • Resolving cash flow issues

  • Providing guidance during each funding round

  • Participating in meetings with potential investors

  • Tracking the company’s growth process and projections

  • Forecasting new business ventures

  • Optimizing systems

  • Measuring KPIs (Key Performance Indicators)

An experienced CFO brings to the table prior experience in corporate finance as well as expertise in long-range operational planning, and the knowledge provided by the CFO is key in helping your startup reach its goals more effectively, with less wasted time and money.

Providing the Board with High-Level Information
The specific role of the CFO – as compared to the role of financial control services – comes into sharper focus when it comes to handling discussions with the board. Part of the role of a CFO is to share information about an organization’s business performance by reporting to the board or other business stakeholders. A CFO can provide high-level information, which may be key in answering tough questions from the board. A CFO also may be helpful in communicating with the board by accurately identifying problems that are impacting performance – or by validating a business decision that requires long-term financial strategy and vision. When it comes to fundraising and capital structure, the significance of the CFO’s role also comes into play. A CFO’s input may suddenly become crucial when an organization starts raising capital. It is the CFO who, typically, helps evaluate how much money to raise and is involved in developing a strategy for establishing a debt-to-equity ratio, an important metric used in corporate finance.

The CFO: Supporting Your Growth
A startup’s long-term success depends on having a good CFO who is involved with the management of an organization’s cash flow, budgets, and business plans – activities that are key in the growth and development of any startup. But in most startups, there isn’t the need nor the budget to support an in-house CFO. And that’s where an outsourced CFO comes in – providing you with knowledge and expertise to assist in the development of your strategic plans and financial decisions.

And What About Auditing?
Don’t get confused! Auditing services are also provided by accounting firms, but not as part of your company. This is an external service that your CFO or controller is supposed to consult and share financial or business issues with.

Financial controls are at the core of operational efficiency, monitoring how a startup uses its financial resources. However, an entrepreneur interested in growing a business rapidly and successfully needs more than what a financial controller typically provides. By working with a CFO, a startup is able to lay the groundwork for long-term strategy and financial success.
At Profitian, we allow startups to reap the benefits of having access to high-level financial services professionals with broad expertise – on an outsourced, part-time basis.
We promote the growth of our clients by providing complete financial management outsourcing services, comprehensive financial planning, and strategic investment advice. And when an organization reaches the point in its development where it needs a CFO in-house, Profitian’s team provides support and guidance throughout the hiring process.

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