Of all the big questions you considered when starting your business, I’m willing to bet “When should I bring on a chief financial officer?” wasn’t number one.
Although we’re passionate about accounting around here, we recognize that many people are not. Few founders go into business relishing the opportunity to dive into their books, set budgets, optimize their cash flow, or create financial forecasts. As a result, countless startups operate for months or years without a CFO, relying entirely on a bookkeeper and a hodgepodge of money management applications.
It’s a workable approach—until the leadership team suddenly realizes it isn’t. There are plenty of moments when it helps to have a CFO as a partner to your business. To help you avoid a crisis, here are 6 telltale signs one of those moments might be coming up soon:
1. You Lack Visibility into Your Finances
Not sure how much cash you’re burning, or how fast? Uncertain about the relationship between your accounts receivable, your accounts payable, and what you actually have in the bank? If your business is moving too fast to stay on top of exactly what you owe, who owes you, and when and where the capital’s coming and going, you’re not just potentially losing money right now but courting future disasters, expensive mistakes, and legal risks.
2. You’re Making More—and More Important—Decisions Than Ever
From hiring your first employees to building a commission structure to expanding into a new market, every decision you make has consequences for your business’ long-term financial health. The more calls you have to make, and the more strategic those decisions get, the more difficult it becomes to anticipate their impact. A CFO will help you navigate the many decisions in front of you, analyze their pros and cons, and communicate the “how” and “why” to your organization’s stakeholders.
3. You’re Letting Investors Down
Investors have high hopes for the companies they back. Robust financial statements and forecasts are important means of proving your business is meeting expectations. If your business is pre-revenue, you better be ready to talk DAU (daily active users), MAU (monthly active users), and customer traction with your investors, who want to see some stickiness in your product. Once you’ve secured outside investors, you need a CFO with experience to give you a complete picture of your business’s performance and the necessary analysis to follow. If your relationships with investors have cooled or soured, it’s a sign that you need better data, a better financial vision for your organization, or both. Financial data is especially important in relationships with “hands-off” investors who aren’t active on your board or advisory team.
4. You’re Having Trouble Raising Money
The same is true for potential investors, as well. A brilliant idea and slick presentation only go so far. An angel investor, peer-to-peer lender, bank, or venture capitalist—any individual or institutional funding source other than friends and family, really—needs assurance of ROI, a realistic picture of the company’s value, and a meticulous strategic plan. Banks and many VCs, in particular, require complex and detailed financial reports, as well as GAAP-compliant accounting, which most bookkeepers can’t provide.
5. Your Team Is Spending Too Much Time Managing the Books
Beware of spreading yourself too thin. It doesn’t make strategic sense to have a senior member of your founding team tasked with managing your company’s accounting. Moreover, the risk of misreporting your financials increases as your books grow more complex. Setting aside the comparison of simple costs— i.e. salary versus outsourced charges—your business loses significant value when a founding member can’t focus on core processes such as product development, team management, or customer acquisition.
6. You’re Already Spending Five Figures Every Month on In-House Accounting
Paying for money management can feel unpleasant to startup founders. The average accountant makes about $76,000 every year—that’s over $6,000 per month. Add in a controller (which many growing companies need to bring on at some point) and that amount can triple, while a CFO’s salary would send costs into the stratosphere.
This might sound like a Catch-22. Given all the reasons you might need a CFO, how is it possible to afford one?
Here’s typically where your business would need to face the music and get ready to pay another executive’s salary. Fortunately, an outsourced CFO can give you more for much less.
With tempCFO, a company spending $18,000 per month on in-house accounting can save over $12,000 every month with a service that provides all levels of financial management and reporting—accountant, controller, and CFO—on demand.
To learn how to access executive insights for a fraction of the salary of a staff accountant, schedule some time with us.