Your Startup Needs a CFO
Last week I had a similar conversation with two different startup-founder friends:
“We’re stretched really thin. Do you have any advice on hiring a VP
My response …
“I know this isn’t what you asked, but I think you need a CFO.”
The conventional wisdom in startup-land is that you should use outsourced accountants until about the time you raise a Series A, then you hire a controller. You don’t need a VP of Finance — much less a CFO — until you’re a metrics-driven company thinking seriously about raising a growth round.
Having waited too long to hire a finance executive once before in my startup career, I look at this a little differently.
If you’re a founder from a non-finance background, you should seriously consider hiring a terrific finance person by the time you have $100k in monthly revenue, especially if you are starting to think about raising another round of funding.
What an Experienced Finance Executive Brings To the Table
An experienced finance executive saves you a surprising amount of both time and money.
If you’re a startup founder working with outsourced accountants, you’re probably spending the bare minimum amount of time you can on “accounting,” you’re doing your financial and strategic planning in a way that’s disconnected from accounting, and you’re ignoring lots of little things (and probably at least one big thing) that can save you money.
An experienced finance executive will:
- Take the job of working with an outsourced accountant or part-time bookkeeper off of your plate.
- Build an operational model for you that is cash-flow based, up to date, detailed, and connected back to the GAAP accounting that you need to do to file taxes and give to your board every quarter.
- Improve your processes around, and take off of your plate, negotiating with vendors and paying invoices.
- Build a strategic model (connected back to your operational model) that will make Series A conversations a lot easier.
All those things are really, really valuable. They’ll help you know where your money is really going and where you can both save money and manage your cash-flow better.
Note that “model,” above, just means “Excel spreadsheet.” But in the same way that “algorithm,” to an engineer just means “a page of code.”
If you’re at a $1M annual revenue run rate, adding a finance professional to your executive team will probably save you more money than you pay that person in salary. And they’ll save you time, as well.
One other quick note: having a detailed and up to date operational model makes it much easier to go to a bank for a line of credit. And having access to an accounts receivable or an inventory line of credit can make the difference between continuing to invest in growth on the route to a Series A, versus being so cash constrained that you’re starving your growth just to run in place.
What To Look For In Your First Finance Hire
Here’s the list of things of requirements to focus on. You need:
- an experienced accountant,
- with big company experience,
- who is super-excited to work at a startup.
This is not the same as my normal early-stage startup executive hiring advice.
For every other executive position at a startup, you need to be careful hiring people out of a big companies. Previous startup experience is incredibly valuable. Startups are just so much more improvisational than big companies (for better and worse).
But the finance executive role is unique.
First of all, the most important thing — the non-negotiable requirement — is having great accounting chops. That’s a skill-set best acquired in a medium-sized or large company or firm.
Second, this is not an ops hire. You’re not optimizing for flexibility and a “figure it out as you go” mind-set. At a growing startup, there’s plenty of standard accounting and modeling work to fill up a 50-hour work week. So hire somebody who really loves accounting and let her do that critical work for you really well!
Of course, it is important that you like this person, feel that she has good (financial) judgement, and that you will work well together. And it’s also critical that this person is super excited about making the transition to working at a startup — about building the first “real” financial model your company will have, and working on a small team in a company that evolves and changes rapidly.
Finally, you’re not trying to hire the CFO who will take your company public. In fact, most people would call this position “VP of Finance,” rather than “CFO.” I’ve used the title CFO here just to emphasize that this person reports to and works very closely with the CEO, and that it’s an important hire for an early-stage, growing startup!
One good argument for the “VP of Finance” title is that you want to leave space in your org chart for down the road, when you do need to hire a CFO with the experience to help you take your company public. :-)
Whatever you decide to call your first finance hire, think seriously about adding a finance executive to your team sooner rather than later. The amount of time, money, and stress you save will surprise you.