How to be a CFO of a Startup: Key Roles and Responsibilities
A Chief Financial Officer (CFO) plays an important role in getting a startup or business venture off to a strong start. If a CFO is hired early, they can setup the right processes, policies, and reporting structures right from day one. You may want to know how to be a CFO of a startup. How can you be successful as a startup CFO? While a full-time CFO may not be on the cards for startup firms with modest budgets, many want to hire a virtual CFO to help set the business up for success.
Whether you are a budding entrepreneur looking for key insights into this dynamic career path, or a mid-career professional looking to improve your skills, you should know that CFO roles and responsibilities in startup companies vary depending on the nature of the business and other factors. As a startup CFO, you will have a significant role to play in navigating the company towards better cash flow management, and at the same time sustaining the high growth.
What is a Startup CFO?
A CFO is one of the most important finance leaders in a startup. A CFO plays many critical roles and oversees many financial activities for an early-stage company or startup business. For example, they provide important advisory and operational experience in financial management, accounting, treasury management, capital markets, and corporate strategy to help a startup company grow.
In a typical business organization, the CFO is the third-highest-ranking leader, after the Chief Executive Officer and Chief Operating Officer. A Chief Financial Officer fills four crucial roles within a new company:
- Steward: Establishes processes and controls to preserve the company’s assets and minimizes risk.
- Operator: Develops processes that ensure effective and efficient financial and business management.
- Strategist: Works with the CEO and other key figures to devise overall corporate direction and business strategies and makes sure financial and operational strategies are aligned.
- Catalyst: Creates long-term value for the startup company through a data-based approach that supports and facilitates sound business performance
Need for a Startup CFO
Startups have some significant and unique advantages over their larger counterparts. For example, small management teams enable companies to make swift decisions, allowing them to respond faster and more adroitly to market changes than the big companies they’re competing with. This agility and flexibility is what makes startups unique, and focus on innovation and growth.
However, having just a few business leaders — including those with little to no experience running and managing a business —also means limited access to the skills, knowledge, and expertise a fast-growing and agile company needs to succeed.
And one area where a guiding hand is required in a startup, but usually lacking, is in the company’s finance department. More specifically, many startup companies don’t have CFO leadership to provide direction and manage finance teams.
Did you know that many startups usually put off hiring a CFO to oversee finance functions until they are more established for a Series A or a Series B round? Keep in mind that waiting too long to staff the critical CFO role could be a huge mistake for many startups. You need someone to lead the finance function and manage day-to-day activities.
This is because 20% of start-up companies fail in their first year, and about 50% fail by year five. You need someone to act as a true steward and strategist. That is why you should hire a CFO for your startup.
CFO Roles and Responsibilities
So, what is the role of a CFO in a startup company? The role of the startup CFO focuses on preparing the new company for fundraising, developing the finance function, ensuring general compliance, and filling key financial roles, such as a finance director, within the company.
The specifics of your startup CFO role will vary from company to company. However, there are some common threads that run through the CFO role regardless of what company you work for.
These include helping to grow the company and offering financial insights and using financial data to steer and guide decision-making and leading the company to success.
Developing the Finance Function
Startup CFOs focus on maintaining and enhancing important finance functions and responsibilities. You may know that capturing and assessing financial data is a huge part of the role of a CFO in any startup. Note that it covers everything from accounting and controlling operational costs to forecasting, preparation of financial statements, cash flow management, financial planning, budget management, financial reporting, and more.
Growing businesses and early-stage companies usually lack the necessary personnel and teams they need to continue growing. As a result, do not be surprised if you are given the green light to build and improve the finance function. You may have to build the finance function from the ground up and create your dream finance team.
It is best to avoid overcomplicating things by filling finance roles for the most crucial functions first. This may include hiring a person (or a team) to fulfill the following important roles:
Accounting and Finance
You may hire in-house or outsource a professional company or individual to handle and manage accounts in the early days of your startup when transaction volumes are quite low.
Reviewing financial data, ensuring accuracy and reliability, and identifying pain points are some key responsibilities and activities that fall under the financial controller’s purview. They also help ensure that your startup company complies with local and international rules and regulations.
Financial Planning and Analysis (FP&A)
FP&A uses financial models and provides the reports, financial forecasts, and strategic guidance needed to grow the company.
Preparing for the Ups And Downs
In many cases, the pressures and challenges of short-term survival are so intense that startup companies usually forget about long-term issues, like managing debt or investing proceeds. A CFO is trained to think ahead and be proactive and can devise and implement strategies, including strategies for dealing with rough or tumultuous financial periods to the best ways to manage explosive growth.
A Chief Financial Officer who has “been there and seen it all” — from the preliminary pre-IPO phase through the IPO process, to significant change events such as mergers and acquisitions — can provide invaluable knowledge and insights to a startup operation.
Fundraising and Funding Guidance
Unless you’ve personal wealth, you’ll need other people’s funds or bank loans to take your startup to the next level. You may know that this process entails going to venture capital firms and business angels and trying to secure ‘Series A’ funding.
From targeting the right angel investors and venture capitalists to preparing for due diligence, there is so much to consider when raising funds for startups. During the early stages, CFOs help choose the most suitable venture capitalists for the company.
Your CFO will play an integral role in this step by managing the due diligence activities and financial planning needed to attract and engage investors. For example, during the fundraising process, your CFO will support the pitch with presentations and slides that tell powerful and compelling stories with credible data.
Keep in mind that timing is an important consideration. If you wait too long to raise funds, you’ll likely miss good opportunities. Conversely, if you begin too soon, you might not have the necessary metrics and KPIs to demonstrate market opportunity, potential growth, and product-market fit.
After your startup has secured the funding, the CFO will also decide how to spend the money judiciously, ensuring the new capital has the greatest possible impact.
Developing Data-driven Strategies
Financial data and ratios are a rich and valuable source of insights that can help inform financial accounting, and cost accounting, and shed light on consumer behavior and trends. Because of powerful tools and applications that facilitate faster and simpler data analytics, CFO’s role is expanding to include being a strategic business adviser.
A startup CFO can oversee data collection and help understand available information, generating the type of data-driven insights and uncovering patterns and trends that all modern businesses and companies need to compete.
Legal and Compliance Responsibilities
The startup CFO also works with the legal department in an organization to avoid any legal risks and ensure compliance. This is why one of the main CFO responsibilities is having a comprehensive knowledge and understanding of the financial-legal regulations and laws of the country your startup currently operates in, and foreign laws and regulations if applicable. Also, a startup CFO is expected to create legally fact-checked employee compliance documents.
As finance leaders, CFOs are also responsible for one of the most significant components in finance management – payroll. As the finance leader in a startup, the CFO is also a people person and is expected to manage their team smoothly.
From hiring and recruitment to termination, you will be involved in many decisions. So if you want to become the startup CFO, it may be the right time to brush up on your people skills!
The Key Qualities and Traits of a Good CFO
A good Chief Financial Officer is a key asset to any new business or startup. They have the skills and qualities to offer critical financial support and guidance to help a young business grow and succeed. Here are some of the top traits and qualities every startup CFO should have:
An excellent and proactive CFO has an in-depth understanding of financial concepts, such as risk tolerance and asset allocation, and can navigate the complicated financial landscape of a startup.
These CFOs are able to come up with creative solutions to financial issues and challenges and can adequately communicate these solutions to relevant stakeholders, such as investors and creditors.
A savvy and forward-thinking CFO has the ability to think strategically about the direction and financial future of a startup. For example, they can develop and set long-term objectives and plans and can identify important opportunities and business risks that may affect the company.
A great CFO also has a strong and comprehensive understanding of business concepts, such as liquidity, as well as how these concepts apply to the startup environment. CFOs are able to offer insights and recommendations on numerous business matters, such as marketing and sales strategies and product development.
How to be a CFO of a Startup
As the Chief Financial Officer of a startup company, you will wear multiple hats. This means that you’ll need to juggle a wide range of responsibilities that are not always limited to the finance function and extends to other aspects of the business, such as operations and compliance. How can you set yourself up for success as the CFO of a startup? Let’s break it down.
Get the Basics Right
When you join a startup company as the CFO, you will likely find it tempting to jump right in and begin doing many things at once. However, remember that when it comes to building your finance team from scratch, it is best to start with the fundamentals and then improve upon them.
You should take the time to ensure that the company’s accounting practices and policies, and data-analyzing processes are working well before you start hiring more people and implementing new systems and processes.
Consider Potential Risks
Although it’s vital to focus on business growth and expansion, a startup CFO should also mitigate risks pertaining to various aspects of business, including the following:
- Outstanding litigation and potential claims, such as lawsuits
- Employee payroll, including benefits programs
- Tax incentives
- Sales tax compliance
- Audit requirements
- Fraud reporting and ethics
- Debt agreements and debt covenants
- Customer or vendor concentration risk
- Cybersecurity, data privacy, and resilience
- Customer data privacy and compliance
Focus on Business Scalability and Driving Strategic Business Planning
Do you know what every startup wants more than anything? Most startups want to scale. If you would like to impress, you should emphasize scalability. It is best to gain a holistic understanding of the business and its risks and develop a strategic view of how it can remain profitable, especially in the long run. You can engage with other departments in your company and think like a business partner.
Develop a productive working relationship with other functions, like the go-to-market team, and understand their vision, the service or product, and how finance can add more value and help attain revenue and profit objectives.
Being a startup CFO does not mean you are just good with numbers. Your abilities and skills as a leader lie in how effectively and efficiently you can communicate information to your employees, peers, and investors. As the CFO, you are in the best position to drive growth and achieve the defined objectives for your startup company.
Don’t wait any longer to take your startup to the next level! By booking a consultation with one of our experts at KayOne, you’ll have access to the best virtual CFO services available. Our team has a wealth of experience working with startups and a proven track record of success, having worked with over 200 companies. With personalized support and guidance tailored specifically to your needs, you’ll be able to reach your financial goals and take your startup to the next level.
So why wait? Book your consultation today and see the difference a virtual CFO can make for your startup!