When Startup Really Need a CFO
When Startup Really Need a CFO With the advent of globalization, businesses aspire to grow beyond their local, regional, national boundaries, and in the process, they sometimes overstretch themselves in terms of reading market opportunities and management bandwidth. All businesses need capital to start functioning, and lack of capital leads the businesses to go out of the marketplace. Funding can make or break a business. In order to manage the finances better, professional help is sought, which is when a CFO (Chief Finance Officer) is hired.
Nevertheless, the basic query remains whether to hire a CFO or not? In other words, when does the business really need to keep a CFO? It all depends on the financial circumstances of the individual firm/business. The need for a CFO keeps evolving throughout the life cycle of the business. Businesses in their early years are managed mainly on a one to one basis where the entrepreneur generally knows the customers and suppliers personally. They can gauge the firm’s performance by regular interaction with the firm. AMENDMENT ACT 2015
However, as the business grows, the entrepreneur can no longer rely solely on those interpersonal discussions and the need for professional arises who can handle the financial picture for the firm. There are mainly three factors that need to be considered by entrepreneurs to decide whether they need a CFO or not, namely: When Startup Really Need a CFO
- A COMPANY’S COMPLEXITY–
The company’s business expanse is a significant factor to determine to have a professional or not. When then are fewer employees and not many work sites then the situation will be under control of the entrepreneur but once the decision is made to expand the areas of work and further diversification then things become much complicated for the entrepreneur to handle alone. It is then that the need for a CFO arises.
- COMPANY’S SIZE–
The size of a firm can always make a difference in the decision to control the management process by the entrepreneur himself or to get professional help. Size does matter while making big finance related decisions. Things may now start to complicate when all revenue related transactions, including payrolls and tax implications, are to be dealt with by the entrepreneur alone.
- THE PACE OF ITS FINANCIAL TRAJECTORY–
The changing financial landscape of a company be it slower or faster, needs a supervising professional to direct the finances towards efficient management of funds and available resources for the growth of the business. It helps to run the works of the business on qualitative information through systematic efforts directed towards a single goal.
The list of a CFO’s responsibilities gives an understanding of what things need professional supervision, namely:
- Developing strategies for investments, debt, equity and taxes
- Securing complex debt and equity funding
- Investing funds
- Reporting to the board of directors
- Negotiating and executing complex transactions such as acquisitions, mergers or large contracts
- Formulating a risk management strategy and managing risk
- Planning for large capital acquisition.
The business will need a CFO only when the above situations occur. In the case of start-ups, it is better to have someone to act as a controller, an accountant, or a bookkeeper. Once the startups business’ complexity, financial activity, or expenses have increased. It is then that a CFO will be required to advise on issues related to deploying cash in ways that will generate the biggest return on investment, identifying and negotiating strategic partnerships and/or major contracts, and preparing for board meetings.
Here the baseline is that once the start-ups start generating revenue it is only then that the requirement for a CFO arises. Before that, hiring a CFO might be a waste of precious resources.