As a CEO or founder of a startup company, you know that the role of Chief Financial Officer (CFO) is vital to the financial health and success of your business.
However, you may be wondering whether it is best to hire a full-time CFO, a part-time or fractional CFO, whether you should outsource the role altogether, or even have a CFO to begin with! In this blog post, we'll compare and contrast the benefist of each option to help you make the best decision for your company.
Do I even need a CFO?
Not all companies need a CFO. The basic activities of bookkeeping and financial statements can be done without a CFO. VP of Finance or even a Controller could work out in certain scenarios. However, as a company grows and becomes more complex, there comes a point where the financial management and strategy requires the expertise of a Chief Financial Officer (CFO).
A CFO can help the company optimize its financial operations and make informed strategic decisions. Some indicators that you might need a CFO:
- Complex financial operations: If your startup has complex financial operations, such as multiple sources of revenue, multiple legal entities, or international operations, it may be time to bring on a CFO to help manage and optimize these financial systems.
- Complex financing needs: If your startup is seeking outside financing or working with multiple investors, a CFO can help manage these relationships and ensure that the company's financial needs are being met. This is also true if you are raising Venture Debt in addition to traditional equity capital.
- Rapid growth: If your startup is experiencing rapid growth, a CFO can help ensure that the company's financial systems and processes are able to scale with the business.
- Need for strategic financial planning: A CFO can help a startup develop and execute long-term financial plans, including setting financial goals, identifying growth opportunities, and managing risk.
- Need for improved financial reporting: Lastly, a CFO can help a startup improve its financial reporting processes, including implementing robust financial reporting systems and developing accurate and timely financial statements. This can be critical for any company in a regulated arena.
Responsibilities of a CFO
A CFO is responsible for managing various aspects of the company's financial planning and analysis, and plays a key role in the strategic decision-making related to the financial health of the business.
This includes creating financial strategies to achieve the company's business objectives, guiding key business decisions related to expenses, financing, capital considerations, and risk management, defining metrics for financial performance, and collaborating with other executive team members to ensure financial alignment with the overall business strategy.
What skillsets does a CFO need to have?
A good CFO should have a strong background in finance and accounting, as well as excellent analytical, problem-solving, and decision-making skills.
They should be able to understand and analyze complex financial data and use it to make informed decisions that will benefit the company. In addition to technical skills, a good CFO should have excellent communication and interpersonal skills, as they will be interacting with a wide range of stakeholders, including the board of directors, investors, and employees. They should also be able to think strategically and be able to anticipate and plan for future financial needs and opportunities.
Other important skills for a CFO may include financial modeling, budgeting, forecasting, and risk management.
Benefits of Full-time versus Fractional CFOs
Full-time CFOs are typically treated as employees of the organization, working on-site and available as a resource during regular business hours. They receive a salary and benefits, and are responsible for all aspects of the CFO role. However, at smaller organizations, a full-time CFO may be asked to take on additional tasks outside the scope of their financial responsibilities, such as bookkeeping, accounting, office management, or IT.
On the other hand, fractional CFOs are hired contractors, who work independently or for an outsourced firm. They are paid on an hourly basis for the time spent working on a particular client, and generally work remotely, serving multiple clients as part of their portfolio. This allows smaller or startup businesses to access the expertise of a CFO without paying a full-time salary or dealing with the administrative burden of hiring an employee.
However, it's important to note that fractional CFOs are not always as immediately accessible as a full-time CFO, as they are balancing the needs of multiple clients. Additionally, while both full-time and fractional CFOs provide expertise in financial strategy, planning, and analysis, a full-time CFO may be better equipped to handle the day-to-day financial management and operational tasks required of the role.
What needs to be happen before the CFO is hired?
Before hiring a CFO, it's important for a company to have a clear understanding of its financial needs and goals. This includes having accurate and up-to-date financial statements, as well as a solid understanding of the company's current financial position and future financial goals. It's also important to have a good handle on the company's financial systems and processes, as a CFO will need to be able to understand and work with these systems in order to optimize them.
Once a CFO is hired, they will typically come in and start analyzing the company's financial data and systems to identify areas for improvement. They may also work with the leadership team to develop financial strategies and plans for the company's future growth. This may include developing budgets, forecasting future financial performance, and identifying opportunities for cost savings.
How much does a CFO cost?
According to data from Glassdoor, the average salary for a CFO in San Francisco is $224,746 per year. In addition to salary, companies may also incur other costs such as equity, bonuses, and benefits.
Based on our experience, startups looking to hire a CFO usually incur between $300-400k in total costs per year.
How do I find a CFO?
There are generally 3 sources for finding CFOs:
- Referrals especially from VC talent partners
- Outbound recruiting from you or your talent team (Public Accounting as well as PE firms are good sources for candidates as well as of course other startups!)
- Executive search firms such as Rocket, RobertHalf, Randstad and others
Summary
Overall, while incredibly expensive, a CFO can be a valuable asset to a growing company, helping to optimize financial operations and make informed strategic decisions. Especially, as a company's operations and financials become more complex, it's important to consider bringing in a CFO to help manage and optimize the company's financial performance.
About Rocket
Rocket pairs talented recruiters with advanced AI to help companies hit their hiring goals. Rocket is headquartered in the heart of Silicon Valley but has recruiters all over the US & Canada serving the needs of our growing client base across engineering, product management, finance, accounting, data science and more.
