Statistically speaking, the future is bleak for most startups. According to a Forbes study, approximately 90% of startups fail, including 75% of all venture backed startups. Why?
In case you’re new here, running a startup is no easy feat. Just a few minor oversights may cause the entire business to spiral into failure. Crippling cash problems constitute the majority of startup demise, whether from lack of funding or failure to plan cashflow. Most startups fail to create a competent financial model or do not manage their budget appropriately to sustain business and achieve scalable success.
Enter CFO: the Chief Financial Officer manages the financial actions of a company, from managing cash flow to forecasting to analyzing financial opportunities and more (Investopedia). A strong CFO professional can truly optimize your startup’s path to exponential success. Unsurprisingly, most startups do not have a finance expert on their founding teams and cannot afford a full-time hire right out of the gate.
A fractional CFO, or part-time CFO, provides a cost-effective solution to cash planning and financial management for startup founders without the commitment of a full time hire. We recommend founders hire a fractional CFO sometime around their seed round, when more cash is available and cash planning becomes deeply critical. However, founders must not settle for any fractional CFO, but take time to understand the specific needs of their business model and how CFO candidates can fit the bill.
Factors to look at when hiring a fractional CFO:
Does the CFO you are considering possess adequate experience to determine your financial needs without constant support from your team? Otherwise, your CFO may become the bottleneck to your operation instead of your shepherd to success. Ask the candidate what companies they worked for previously and discuss financial models and forecasts they have created – even better if they can show examples.
Your CFO must demonstrate high competency in understanding historical data and current expenses to accurately forecast the future. This presents even more challenges for startups as historical data is typically minimal or non-existent. The CFO must be able to prove that your accounting accurately reflects true business operations: margins must reflect that revenue and cost are recognized in tandem and expenses must exist within the correct department. A compelling CFO candidate can quickly determine the revenue and costs of your business to expose your startup’s financial weaknesses and opportunities.
While the CEO is primarily responsible for fundraising, the CFO must be able to aggregate and pinpoint favorable data attracting clients and investors who will inevitably shape the future of your startup. A substantial portion of fundraising operations lies in due diligence – your CFO must be able to sift through your company’s data and collate forecasts. Even more, potential investors will likely want to speak with your CFO to better understand the financial details behind your business.
Ask your potential fractional CFO candidate what fundraising experience they have, what successes they realized, and their takeaways from failures. Raising money presents the trust test of a CFO’s forecasting and financial skills. A good CFO can speak to many fundraising experiences. A great CFO can prove they will get your startup prepared for due diligence well in advance of potential investor meetings.
Where to find a fractional CFO
If you don’t know where to hire a good fractional CFO, international platforms like Pilot and AirCFO provide CFO services through their online platforms. If you are a founder between seed to series A, consider a regional CFO services firm, like Venture First or Airstream Alpha, to work with highly experienced financial professionals. For the CFO lite edition, reach out to Forecastr for learn more about our financial packages and forecast your path to success.