5 Signs Your Technology Startup Needs a Virtual CFO

As the founder or cofounder of the next big tech startup, you’re feeling a lot of things right now: Exhaustion (no amount of Red Bull can make up for the countless nights of little or no sleep), Elation (your company name is epic, the domain name was actually available, and your business cards are fresh), and Confusion (budget allocation, gross margins, and capital expenditures, say what?!).

While many tech startups have the ability to develop cutting-edge and disruptive technologies, most struggle to understand basic monetization strategies or how to prepare financials for investor pitches. This lack of understanding sets them up for inevitable failure.

Thanks to their macro viewpoints and expertise, CFOs can help startups forecast and develop an investment strategy, determine equity and option allocation, and advise on spending, as well as any human resource decisions. This valuable input can help raise much-needed capital and build a solid, profitable business.

However, because of their lean principles, many startups forgo hiring a fulltime CFO, whose yearly salary can be a big burden on payroll expenses. This is where a virtual CFO comes in handy. These “on-demand” professionals can be leveraged for a fraction of the cost, yet offer the same expertise when needed.

Here are 5 signs your tech startup needs a virtual CFO:

1. You Think a Balance Sheet is a Kind of Hoverboard

You’re fluent in Java and JavaScript, but not so much in things like balance sheets and income statements. A virtual CFO can offer you expertise regarding your financial strategies and operations. You may think that you can ‘figure things out as you go along,’ but know that the financial decisions you make out of the gate will have long and lasting implications.

2. Developing Technology Isn’t the Same Thing as Choosing IT

Have you ever seen Mario Batali make sushi? No, and you never will because the guy eats, sleeps, and breathes Italian food. And, though he is a master at creating delectable Italian cuisine, he most likely couldn’t make an acceptable sushi roll to save his life.

The moral here is that, though you may create really great technology, it doesn’t mean you know a thing about which accounting software is the best for startups.

Virtual CFOs eat, sleep and breathe all things accounting, and will be able to recommend a software package that is efficient, affordable, and will allow you to reduce admin costs.

3. Budgeting Confuses You More Than the Ending to “Inception”

For many tech startups, budgeting means figuring out where next week’s payroll will come from. Ouch. You don’t want to learn the importance of a corporate budget the hard way. No one does.

Corporate budgets formalize goals, set milestones, and establish key success indicators. This living, breathing document is one of the most powerful financial tools at your disposal. It’s what keeps your company on track for success.

If, like the ending to the film Inception, budgeting confuses the stuffing out of you, you’ll want to hire a virtual CFO. Your virtual CFO will help you maintain a good short- and long-range financial plan that will set you up for success.

[As for Inception: the spinning top is irrelevant and it doesn’t really matter if Cobb is dreaming or not. You’re welcome.]

4. Cash Flow — Schmash Flow

If to you the term ‘cash flow’ means the amount of money your company is making and nothing else, you definitely need help.

Your virtual CFO will manage your cash flow effectively. This is incredibly important and means a few different things:

• Having a CFO take charge of your business capital means someone is always making sure your assets are being used most effectively.
• They will be able to determine the best investment strategies and asset classes to consider.
• They will supervise your critical business numbers.
• They will set up and maintain a strict debt collection policy so you receive money owed for all your hard work.
• They can advise on financing options when more capital is needed for expansion.

5. You Need Help Identifying and Reducing Risks

Entrepreneurs have passion and drive, and their own brand of knowledge, but they typically don’t have the financial background that will allow them to identify and reduce enterprise risks.

A virtual CFO can help you mitigate numerous risks by developing more efficient accounting and A/R procedures, improving internal financial safeguards, and assessing your specific insurance needs to enhance the cyber-security of your financial data and protect your assets.

BONUS REASON: You Need a Strategic Financial Partner on Your Team

Don’t think of a virtual CFO as simply an accountant to have on hand once in a while, but as a strategic financial partner who will guide your finance operations as well as play an integral role in developing your strategic plan, enhancing your corporate governance structure, and improving your overall business operational processes. And, as an added benefit, you can use these highly-skilled experts as a go-between with bankers and attorneys. Because who really wants to talk to bankers and attorneys?

Since no two tech startups are alike, no one-size-fits-all financial solution will align with each new business venture. Having said that, every startup should consider hiring a virtual CFO who can help them navigate the complexities and vulnerabilities of starting and growing a profitable business.