Fernway DiarySM

Aug 02, 2021

For many startups, it’s all about the product. Founders are often technical wizards with a passion for the company they’ve created and the technology (often) that it’s built around.

It can be exciting for founders to work on product development or show off their creations to potential partners and investors. The financial management of the company, on the other hand, often gets put off. Founders may step into the CEO, CTO, or CIO roles, but the CFO chair gets ignored, often longer than it should.

So, how do you know if your growing startup is ready for a CFO?

Here are some solid clues to help you decide, but first, you should know exactly what a CFO is.

The difference between an accountant, a controller, and a CFO

The term “accountant” can be used for a wide range of jobs and individuals. You may work with a CPA or Chartered Accountant to file taxes or prepare financial statements. Even your day-to-day bookkeeper may be an accountant, depending on their education and credentials.

A controller oversees the accounting team and can also be involved in process improvements and analysis. Your controller is in charge of internal controls and systems that ensure your accounting data is protected and accurate. As you can see, these are all still accounting functions, just on a higher and somewhat strategic level.

A CFO, on the other hand, moves out of accounting functions and into finance. The CFO’s role is focused on strategic planning and stakeholder management. If you need help planning a funding round, an exit, M&A, or just communicating and reporting to VCs or private investors, this generally falls on the CFO to drive forward.

Signs that you need a controller

As your startup grows, with more complexity, more people, and (hopefully) more money, the need for oversight and safety measures grows too. You don’t want a mistake or poor choice from one member of your team to have a big financial impact on the company. This is where a controller can protect you.

By setting up internal controls, they’ll minimize the risk of fraud or inadvertent errors in your accounting process. They’ll also make the financial-reporting process more efficient for, and relevant to, your company. A controller can help the CEO make budgetary decisions by providing relevant and contextual data and insights. However, they may not be strategically inclined when it comes to the overall budgeting and financial growth process.

Signs that your business is ready for a CFO

A CFO can develop your financing strategy, work with potential investors, and report to stakeholders. If your startup is seeking VC backing, there’s a very good chance their board will want you to have the financial guidance of a CFO.

If you’re seeking debt or equity financing – or trying to determine the best balance for your company’s future – a CFO can help you make informed decisions. They’ll perform the due diligence necessary and communicate with investors as they do their own due diligence.

When it’s time to take your firm public or consider an exit sale or merger, they’ll look into all options and make sure you’re prepared. Without a CFO, you face the potential risk of making a misjudged financial decision at a crucial time for your company’s growth.

Finally, if you’re ready to take your business international, you’ll need the guidance of an experienced CFO who understands cross-border structures and complexities. Their strategic leadership will be critical during the complex process of scaling the business internationally.

Filling the chair

Filling that empty CFO chair can be a significant step for a growing startup. Especially if you’re looking ahead to funding or VC backing and the funds aren’t there quite yet. Fortunately, this doesn’t need to be an all-or-nothing scenario. In this age of cloud-based SaaS technology and easy digital communication, it’s easier than ever to hire an outsourced CFO on a fractional basis. Think of it as CFO-as-a-Service. As your needs increase, you can step up the engagement with your CFO to match. This can be achieved by leveraging a technology-driven solution, and/or partnering with an expert outsourced CFO advisory firm that has a vast amount of experience helping startups grow as they scale their business.

At Fernway Solutions, and through our network of firms that specialize in providing fractional CFO solutions, we offer a full range of accounting and advisory services to ensure your business has what it needs at each stage of the company’s growth, from startup to unicorn.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

Disclaimer:
The above content is intended to support the marketing of professional services and should not be construed as written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular tax situation. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Fernway Solutions assumes no obligation to inform the reader of any such changes.