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3 Signs It's Time to Hire a CFO As your startup grows, processes become more complicated. Even the brightest founders and CEOs can benefit from a leader with a solid foundation in finance.
You've spent years building an innovative business from the ground up. These days, your team is likely three or four times the size it was in the early days, and your revenue has hopefully grown even more than that.
There comes a time in the life of a startup when the founder, CEO, and their team need guidance and expertise from someone who will manage the company's finances day in and day out. If your business's financials are not in order, you won't be able to accurately calculate and analyze your metrics and KPIs. Lacking this ability will make it difficult or potentially impossible to scale and fundraise. This is where a Chief Financial Officer (CFO) can help.
"A strong CFO will be a trusted strategic business partner of the CEO," explains Jaque Elliott, a Director at Silicon Valley Bank, a commercial bank that has helped fund more than 30,000 startups and innovative growing companies.
"He or she will help get the business to the next level," Elliott says, "by assisting in the next fundraise, determining the best capitalization structure for the business, helping craft the corporate strategy, managing working capital needs, tracking and analyzing the business's metrics and KPIs, and focusing on generating business value."
And as more businesses move toward a distributed workforce, the role of CFO becomes even more valuable. While a distributed workforce can reduce business and infrastructure costs, it adds complexity in areas like compensation plans and payroll. It also increases the need for automation and to improve efficiencies through operations management.
But when will the time come for you to hire a CFO? Here are three signs your company is ready.
1. Your business is scaling.
Your revenue is growing, your employee count is swelling, and you're adding strategic partnerships to help the business scale. That's great news. But with all this growth comes more complex financial responsibilities.
"Exactly when a strong CFO or VP of finance is a must-have will vary depending on the stage, speed of growth, industry, and needs of the organization," Elliott explains. "I regularly hear from CEOs that they wished they had hired a strong finance lead sooner."
If you've noticed that finance has become a burden on the founding team, and the board isn't getting the quality financial info they're looking for, then you'll likely benefit from the services of a CFO. "Any finance lead should be able to take accounting, tax, budgeting, financial modeling, and a good portion of operations off the CEOs shoulders," Elliott says.
2. You're raising a meaningful amount of capital.
While there isn't a financial threshold for when you technically need a CFO, Elliott says if you're looking to raise $10 million or more for your business, then it's smart to hire that position — especially before you're at least six months out from raising the money.
"The finance lead will make the fundraising process easier," Elliott says. "He or she will shore up your financials, build a proper forecast, ensure proper calculation and understanding of KPIs and metrics, manage the data room, be a resource on investor calls, and be responsible for the go forward reporting requirements."
Your CFO should also play a crucial role in evaluating the funding options — cost of capital, dilution, terms, etc. — and helping the CEO determine the best path forward. "The finance lead's goal should be to optimize the capital structure of the business," Elliott says.
3. The business itself is becoming more complex.
Creating new product offerings or expanding operations internationally can be great opportunities for growing businesses. However, they're also signs that your business is becoming more complex and open to increasing regulatory requirements.
"It is easier to avoid adding unnecessary complexity to the business than remove it later," Elliott says. "A CFO can help the business analyze new opportunities, determine if now is the right time to pursue the opportunity, and ultimately efficiently pursue the opportunity."
Whether you're scaling, raising money, or planning big changes, the solid foundation in finance that a CFO brings provides a business with the necessary footing to accurately assess the performance of the business and the financial literacy to make informed business decisions.
Click here to learn more about Silicon Valley Bank and how they go beyond banking to support your business goals at every stage.