Startups have some significant advantages over their larger rivals. Small management teams allow companies to make quick decisions, enabling them to react faster and more nimbly to market changes than the Goliaths they’re competing with can.
However, having only a few leaders — including those who may have little to no previous experience running a business — can also mean limited access to the skills and expertise a fast-growing company needs to succeed. One area where a guiding hand is needed in a startup company, but often lacking, is in the finance function. More specifically, many startups do not have CFO leadership.
Startups often put off hiring a CFO until they are more established or preparing for an initial public offering (IPO). However, waiting too long to staff this critical role could be a mistake, says Jason Flanders, executive director for Robert Half Management Resources.
“Startups and other fast-growing companies can benefit from bringing in a CFO sooner than later because they need to get their processes in place, especially around governance and compliance,” Flanders explains. “Otherwise, they could face significant obstacles that may hinder their future success, whether they are planning an IPO or not.”
That risk becomes more obvious when you consider just some of the ways that CFOs can help startups and fast-growing companies, including pre-IPO companies, to structure and run their operations:
Managing cash flow
A funding runway — that is, having the appropriate amount of money in place for the company to “take off” — constitutes a major challenge for most startups. When costs are high, and revenues are low to nil, companies can easily blow through all their initial capital before they establish a market presence.
A CFO can manage expenditures, prevent costs from getting out of hand, and help ensure that the company stays solvent during its challenging early years.
Preparing for the ‘ups and downs’
The pressures of short-term survival are so intense that startups often forget about long-term issues such as managing debt and investing proceeds.
Trained to think ahead, a CFO can develop and implement strategies from how to deal with rough financial periods to the best ways to handle explosive growth.
Flanders says a CFO who has “been there and seen it all” — from the pre-IPO phase through the IPO process, to major change events like mergers and acquisitions — can offer invaluable knowledge to a startup operation. He suggests looking for CFOs with “turnaround” experience as well. “Have they seen a business fail, or almost fail, and helped implement processes or change management strategies to get it back in track? That’s critical experience,” he says.
Building an efficient infrastructure
Financial system scalability is another area where the CFO can help a startup company to build a strong foundation that will support the business as it grows. And that growth can sometimes happen overnight.
Thank about it: If your business suddenly catches fire and your customer base swells a hundredfold, do you have the financial systems in place to handle that increased demand? If not, you risk losing momentum and customers — while potentially gaining some negative press.
An experienced finance leader can institute scalability in many areas, from payment processing and payroll to human resources and accounting systems.
Developing data-driven strategies
Financial data is a rich source of insights that can help inform cost accounting, shed light on consumer behavior and much more. Thanks to powerful tools that enable faster and easier data analytics, the role of the CFO is expanding to include being a business strategy adviser.
A CFO for a startup can oversee data collection and then help make sense of the available information, generating the kind of data-driven insights that all modern businesses need to compete.
Unless you have personal wealth, you need other people’s money to take your startup to the next level. This process usually involves going to venture capital firms and trying to secure Series A funding.
The CFO plays a vital role in this step by managing the due diligence and financial planning required to attract investors. The CFO can also help spend that money wisely so that the new capital will have the greatest impact.
Preparing the company for the next stage
A startup is only a startup for a limited time. Assuming that the business doesn’t fail, one of three things will happen next: The private company matures, issues an IPO or gets bought out.
What’s more, entities do not remain the same forever, such as when a private company decides to go public at a later date or merges with another firm. Part of a CFO’s role as a long-term strategist is to prepare for these eventualities and ensure a smooth transition.
Because startup and scale-up companies are evolving so rapidly, it can make good business sense for these firms to use a flexible staffing strategy — taking care not to over-hire or get bogged down in protracted searches for specialized talent. CFOs can help on this front, too.
Many finance executives today, at companies of all sizes, rely on a flexible labor force that includes full-time employees who are focused on critical initiatives; interim and project-based professionals who help to support them, usually for a finite period; and other specialized resources that can provide additional capabilities and perform high-value work on an as-needed basis.
Download the free white paper, The Labor Model for Finance in the Digital Age, from Robert Half and Protiviti, a Robert Half subsidiary, for more insights on how CFOs and other finance leaders are tapping highly skilled, interim resources to supplement their core teams.
Should you bring in an interim CFO?
Often, startup founders understand the need to have an experienced financial leader on the senior team, but they worry they can’t afford one. However, the reality is they can’t afford not to have one.
Still, when companies are running lean, they can struggle to stretch budgets further. By bringing in an experienced finance professional on a consulting basis, they can solve the affordability issue. An interim management consultant can be a smart solution when the business needs access to a CFO’s planning and investment expertise but isn’t quite ready to staff the position with a full-time hire.
“Bringing in an interim CFO is a cost-effective and flexible approach to staffing this critical role,” Flanders says. “Startup ventures are moving so fast that they may not even have the time to launch a search for a full-time hire. Plus, if they rush the process, they could end up making a bad hire that is costly and undermines productivity.”
Flanders adds that some startups and fast-growing companies may also want to consider engaging an interim controller, who can “execute on day-to-day operational accounting, while the CFO is working closely with senior leadership on strategy.”
Must-have skills for modern finance leaders
If your fast-growing company needs a CFO, you’ll want to look for an executive who has a blend of technical and nontechnical skills, including:
- Financial aptitude — To guide a startup during the challenging early years, the CFO needs solid accounting experience, business acumen and an excellent grasp of business analytics.
- Strategic thinking — A creative and visionary CFO is instrumental in helping the organization find a path toward long-term goals that may seem unobtainable. They are also able to identify opportunities when others see only problems. Today’s strategic CFOs can bring a strong combination of business and operational knowledge to the table.
- Tech abilities — The CFO must have a strong understanding of technology, as technology influences almost every single decision in a modern business. Pursuing process automation, for example, can save time and money. And using digital services can broaden a business’s reach and deepen connections with consumers. The CFO should understand how technology impacts their business, both in terms of the opportunities it can create and the challenges it can present.
Research by our company shows that CFOs are collaborating more often with chief information officers (CIOs). These executives work together to help senior management consider operational and financial issues — and weigh the potential risks — when the business needs to implement new technology solutions. The CFO-CIO partnership is especially vital to the finance function’s transition to new technologies, including advanced tools like artificial intelligence (AI).
The bottom line: A highly skilled CFO can bring a lot of value, including experience and insight, to a startup or fast-growing company. Whether that person works on an interim basis or not, a CFO can help the organization to manage acceleration, scale effectively to meet changing business demands, and “mature” and formalize its operations, so it's prepared to meet whatever the future holds, head-on.
Need to find an interim CFO? We can help.
Whether your business is starting up or scaling up, Robert Half Management Resources can help you find a highly skilled interim CFO to complement your leadership team. We specialize in placing senior-level professionals in consulting and interim management positions in the areas of finance and accounting, financial optimization, business systems, risk and compliance, taxation, and operations management.