CFO Services for Startups – What to Expect

Why startups buy CFO services before they hire

CFO services for startups give early-stage companies senior financial leadership – fundraising support, financial modelling, cash-flow management and investor reporting – without the cost of a full-time CFO hire. Most startups buy this as a fractional or virtual engagement, scaling the hours up as they raise and grow. This article explains what startup CFO services cover, when to bring one in, and how the model keeps finance costs proportional to stage.

For startup founders and business owners with little financial expertise, it can be a substantial challenge to record financial data. It can also be hard to evaluate and analyze data and determine your business’s next move based on those numbers. And this is the reason most startups and small businesses fail.

Regardless of the products or services you sell, you will eventually need help with your company’s financial statements and financial health. Some other aspects of business that need expert consideration include:

• Financial management
• Financial reporting

A dilemma that many startup founders face is when to hire a Chief Financial Officer (CFO). Also, many wonder whether they should hire a full-time or part-time CFO.

Every startup company is different and has unique needs. However, for many startups, the answer is usually the same. If you are not considering going public in the next one to two years, consider working with an outsourced CFO. This will help you make the most of outsourced CFO services.

The Rise of Outsourced CFOs

Outsourced CFO services for startups and virtual CFO services are becoming popular. This is because of many reasons, especially their benefits, and effectiveness. Using CFO services for startups gives businesses access to financial experts and professionals with a wide range of experiences.

And that is not all; it offers you the flexibility and convenience to access that financial expertise as needed. There is no need to hire a full-time CFO. Companies and small businesses outsource many functions, such as payroll, accounting, IT, and marketing.

However, many startup founders and business owners do not realize they can easily outsource their finance functions. In fact, you can do it at just a fraction of the cost of hiring a full-time employee.

What is an Outsourced CFO?

An outsourced Chief Financial Officer (CFO) is a financial expert who provides financial leadership and expertise to your startup company but isn’t a permanent employee. An outsourced CFO is a financial professional who offers strategic guidance and financial expertise to your company on a part-time or project basis. That is where they are different from in-house or permanent CFOs. They are brought into the business as a consultant to bridge the knowledge gap.

Unlike a full-time CFO who is employed directly by a company, an outsourced CFO is an independent contractor or consultant who is engaged by the startup to provide financial services.

You will be happy to know that outsourced CFOs can provide a range of financial services. Some of these services include business planning and analysis, cash flow management, financial forecasting, budgeting, financial reporting, and tax planning.

Besides providing strategic planning and financial management services, they may also help your startup with mergers and acquisitions, compliance with financial regulations, and risk management.

You may know that in-house CFOs and permanent employees ask for higher salaries and employee benefits and perks similar to the company’s senior management team. However, for new and growing businesses, it becomes challenging to afford their high salaries and find time to hire the right candidate for this important position. Outsourced CFO services are a solution to this problem.

What are Outsourced CFO Services?

Let’s discuss what a CFO does. The Chief Financial Officer of your startup is responsible for everything pertaining to your new company’s finances, such as budgeting and fundraising. From a managerial perspective, your CFO often oversees the teams responsible for tactical issues, such as keeping accurate, updated, and timely books, and correctly meeting your tax liabilities.

From a strategic standpoint, your CFO will keep tabs on your company’s well-being, providing guidance to meet your financial objectives, such as:

• Track and provide regular updates on your financial metrics
• Help prepare your budget
• Review and analyze important KPIs
• Create financial forecasts
• Guide and direct plans for future growth and expansion
• Review the board deck and create financial slides
• Regularly evaluate and assess your financial hygiene and recommend best practices
• Make suggestions and recommendations to strengthen your financial position

Newer and smaller businesses, especially startups, do not always have enough work or budget for a full-time CFO. However, that doesn’t necessarily mean they do not need access to a CFO’s talents and skills. Rather, when you are growing your business or expanding into new markets, you need a CFO’s expertise and knowledge more than ever.

CFO services for startups allow you to leverage the services and insights of an accounting firm. You will get access to all that a Chief Financial Officer can do, but to the extent you need it.

An outsourced CFO fulfills the strategic role in your company – but rather than joining your startup as a corporate officer and demanding high pay, they will work with your company on a contract basis.

You will be happy to know that most outsourced CFO services, also known as fractional CFO or virtual CFO services, are available at subscription or hourly rates.

Outsourced CFO Services that Startups Need

CFO services and fractional CFOs can be incredibly valuable for startups, particularly as they work to establish financial stability and growth. Here are some of the top CFO services that startups may find beneficial.

Outlining Financial Strategy

Currently, your startup may have an employee, such as a bookkeeper or accountant, in the accounting department. As a result, you may think there is no need to hire a CFO. A bookkeeper, financial controller, and accountant are responsible for maintaining your current financial records. However, keeping books accurate and organized is not enough to take your startup to the next level.

On the other hand, an interim chief financial officer focuses on detailed short-term and long-term financial strategies for your organization and helps you devise a strategy your company needs to reach its financial goals and objectives.

Forecasting and Financial Planning

CFOs are experts in financial forecasting and planning, which helps you develop a road map for attaining your goals. They are highly knowledgeable and well-versed in a variety of industries and can understand the current scenario of your startup and future opportunities.

Note that their step-by-step guidance comprises both short and long-term forecasting, which needs in-depth analysis, planning, and strategizing.

CFOs can help startups and small businesses develop financial plans that align with their long-term strategic objectives. This can include cash flow management, forecasting, and budgeting.

Develop Contingency Measures

Some startup founders and entrepreneurs are negligent of long-term issues. Many startups prioritize surviving the first two or three years and become short-sighted.

CFO services for startups are invaluable and can prevent this from happening since an outsourced CFO usually develops strategies to tackle financial challenges and handles unstable or sudden growth.

Risk Mitigation and Crisis Control

There is no denying that risk is an inevitable part of any business and startups are no different. If you do not identify risks, they could hamper your company’s growth. CFOs can help startups and new businesses assess and manage financial risks, such as market volatility or regulatory changes. They can also help establish internal controls to protect against fraud and other financial risks.

Outsourced CFOs are experienced financial professionals and have comprehensive knowledge of different industries, markets, and products. As a result, they will help you identify and address various risks, such as market risk, to ensure smooth and profitable operations.

In addition, an outsourced CFO monitors and controls risk factors such as strategic risk, changes in governmental regulations, and overall economic climate to set you up for success.

Accounting and Reporting

CFOs can help startups and small businesses establish accounting processes and systems, and provide regular financial reporting to stakeholders. This can help startups stay on top of their finances and identify areas for improvement and growth.

Fundraising

Fundraising is one of the most complex and tricky tasks for organizations. However, if you have an outsourced CFO to manage fundraising, this process will not seem tedious or challenging. CFOs can help startups identify potential investors and devise strategies to secure funding.

They can also help prepare financial models and investor presentations. Also, they have connections with financiers, such as angel investors, and can introduce you to them.

Cost-cutting

As a startup founder, you may know that small businesses and rapidly growing startups face challenges in slashing business expenses and overheads. An outsourced CFO will track your company’s unnecessary business expenses, helping you save money.

Tax Planning and Statutory Compliances

CFOs can help startups and small businesses optimize their tax strategies, making sure that they comply with all relevant tax laws and regulations while minimizing their tax liabilities. CFOs also have extensive experience and expertise in the financial industry and can take care of statutory compliances that help you protect your startup from regulatory actions, such as fines.

Replacing Technology Platforms

You should know that CFOs are usually called in to audit or replace financial software platforms to streamline and optimize business processes while improving business scalability. Note that it is a tall order that will likely have long-term ramifications for your startup company.

Once tasked, your outsourced or virtual CFO will help implement an integrated and reliable stack of solutions needed for financial insights and tax compliance.

Benefits of Using CFO Services for Startups

Cost-effective

It is no secret that the cost of hiring, onboarding, and training a new CFO is exceptionally high. You’ll have to pay them higher salaries, bonuses, and employee benefits, and keep them up-to-date with training.

A full-time CFO is simply out of reach for many startups and small companies. Outsourcing CFO services is simple and cost-effective since the fee you pay covers the labor, technology, and system costs. Virtual CFO services for startups let your company tap into CFO-level financial expertise and growth strategies, for only a fraction of the cost.

Greater Flexibility

Startup companies move fast and operate in a dynamic environment. This is why what you need today may become irrelevant tomorrow. Outsourced CFO services and virtual CFOs allow you to adjust your engagement terms as your company evolves.

Fast Results

One of the best things about an outsourced CFO is that they can help you get results fast. How is this possible? Their experience and expertise help them know where to start as well as how to deliver results quickly.

An outsourced or virtual CFO often has many years of financial knowledge and expertise and can help you achieve your business goals and objectives and deliver the best results for your company. With an outsourced CFO, you’re more likely to attain your business and financial goals quickly.

Unbiased Insights

Offering objective and clear information on financial data, such as financial ratios, about your startup company is one of the core functions of the outsourced CFO. They are honest and unbiased about the financial decisions – both short and long-term – they make about the business.

The perspective of an internal CFO may be affected by interpersonal relationships. So, they may not be able to express unfavorable opinions in order to preserve those relationships. 

On the other hand, an “outsider” CFO can identify your finance and accounting problems and issues without such worries.

Tips for Choosing the Right CFO Services Provider

Just like a permanent or in-house hire, your fractional CFO must be a good fit for your company. Here are a couple of things to keep in mind when making this decision:

Relevant Experience

Different types of companies, in different sectors and verticals, may have different financial metrics and KPIs to prioritize and different challenges and problems to plan for. You should look for a CFO provider with experience at companies similar to yours.

For instance, if you are planning to fundraise in the near future, get an outsourced CFO who has effectively raised funds in the past.

Your Objectives

CFO services providers generally offer a wide range of services, such as budgeting, financial forecasting, and KPI analysis.  To ensure that you get the most benefit from your virtual or fractional CFO, you should think about the problems and issues you’re trying to solve and the results you’re hoping to achieve.

Knowing your objectives and goals before engaging a CFO for your startup will help you know what questions to ask, and what experience or criteria to look for.

When a startup should hire CFO services

Engaging an outsourced CFO is a great way to make sure you achieve your goals and scale your business. You will benefit from the same knowledge, experience, and expertise from an outsourced CFO at a considerably lower price compared to an in-house CFO.

You may find it unnecessary to hire a CFO immediately, but a trained finance professional will help you improve the functionality of the accounting department, manage cash flow and ensure financial growth.

Startup CFO services are only worth it if they match your stage and your goals. KayOne embeds a senior fractional CFO into founder-led companies between $2M and $50M – the model, the board and investor work, the financial discipline. If that is where you are, see if we’re a fit.