Startup founders have to be magicians. They build a company from the ground up, gather talented people under one roof, and make their business grow to inspire others. It’s not an easy task; one is often attached to a 24-hour work routine. This doesn’t change until the business’s finances and profits stabilize. When it comes to finances, it’s like your business is riding in a snow globe, balancing revenue and expenses on either side. It’s tricky, and without financial or accounting knowledge, it becomes even more challenging. As your business grows, it’s evident that you must seek assistance from experts like a CFO to guide you on the right path. But what about when you are just starting and making ends meet? Let’s understand the crucial factors to consider before hiring a full-time or fractional CFO.
Nonetheless, if you are looking to hire an expert CFO, choose one with years of market experience and knowledge. Consult a CPA in Richardson, TX, or an outsourced CA agency.
Why Do You Need a CFO?
CFOs are professional experts responsible for the accounting team and the financial department’s actions. They manage cash flow, oversee financial planning, and ensure regulatory compliance. This assures the company has enough liquidity and liability for required operations and growth. CFOs also play a crucial role in financial planning, using the company’s historical data and economic insights to guide the owner or CEO in making well-informed decisions. They develop effective strategies to help the business avoid downfalls and financial pitfalls. Moreover, a CFO can be your right hand during an audit process, managing all regulatory compliance activities and answering the auditor’s vital questions.
When Is the Right Time to Hire a CFO?
Most founders think of accounting narrowly when they hear about a CFO. They should consider accounting as bookkeeping and account management. However, when a CFO comes into play, they must broaden their perspective. Sure, clean books, accounts, and finances matter a lot, but a financial executive expert brings more to the table than just good housekeeping. Maintaining records, systematizing financial activities, and ensuring compliance with rules and regulations is an accountant’s job. While this is overseen by a CFO too, of course, you can lead your accountant’s team, but if you don’t know the ABCs of this subject, it can be problematic. Plus, you wouldn’t know what to do with the reports, bank statements, and bundles of documentation. A CFO has the foresight to look beyond the present, assessing a business’s ability to perform in the near future using historical data and work trends.
So, first things first, you must move beyond the common myth of hiring a CFO and objectively consider the substantial factors. If your business is making $10 million a year, you should hire a CFO right away, as handling this level of finance and accounting in a streamlined way is not possible without an established system. If your finances are lower or fall between $1 million and $10 million, you can also get advice from a CFO on a part-time basis.
Ask the following questions to determine whether to hire a CFO or not:
- Will the business be able to grow and progress within the given period without a CFO?
- Is your team competent enough to manage taxes and compliance rules when $10 million in revenue comes into play?
- Can your accountant or finance team manage the workflow and increased bandwidth and handle the audit process when the IRS comes knocking at your door?
- Do you have a future planning model and analysis based on the company’s previous data?
- Do you have enough knowledge about cash flow management, revenue, profit and loss, the bottom line, and other vital financials of your company?