A CEO wears many hats. At a services firm that’s in high-growth stage, the CEO often performs functions that a CFO provides, including accounting and bookkeeping. But today’s CFO provides much more value beyond accounting. The CFO structures an organization’s business to support growth and scalability. He or she develops models and strategies for various financial performance scenarios. He helps turn new services into profitable and sustainable offerings. It’s pretty nice to have a CFO at any company stage; however, they are often times a luxury that a startup can’t afford. So here are three signs your firm actually needs a CFO.
Growth, Balance, and Shifts
Three situations trigger the need for a CFO for startups: Your company is growing fast, you need a system of financial checks and balances for your board, and you’re anticipating a shift in your business.
"The CEO eventually won’t be able to handle all of the tracking himself." — Michael Lin, CFO
First, you’re growing too fast
When revenue reaches a certain threshold, the CEO eventually won’t be able to handle all of the tracking himself. This is because he needs more than just accounting skills. He needs a C-level financial strategist to back him up.
Second, your board says so
The CEO reports to the board and at a certain point they’ll recommend having a CFO as a business partner for the CEO. This recommendation is in part due to many hats that the CEO wears and the specialization that accounting and finance requires. Additionally, the board will require a CFO role from a corporate governance standpoint.
Third, you are anticipating a change
Changes to your company include raising capital, making an acquisition, going public or selling the company. These situations require the discipline of regularly — and accurately — reporting financial information. If you are anticipating one of these events in your business, the time is now. It often takes a year of strategic planning to get your house in order.
What changes after a CFO?
You’ll notice changes internally and externally. The internal role of a CFO is twofold. He ensures accurate and proper accounting and financial reporting. I call this the rear-view mirror duties of the CFO.
"The CFO becomes the support, strategy, and checks and balances, for a company." — Michael Lin, CFO
Secondarily, the CFO improves forward-looking functions: budgeting, setting metrics, forecasting revenue, and owning the company’s financial strategy. He works closely with executive management to understand how business changes will impact finances. He puts all this information into a language stakeholders can use to form opinions.
In essence, the CFO becomes the source of support, checks and balances, and financial strategy for a company to meet its goals.