During their infant stages, startups can’t afford to hire more than a handful of employees. Thus, these employees must be ready to fill in multiple roles instead of specializing in just one.
But such a small group of leaders may run into some problems, especially if they’re new to the startup world. Having little experience in dealing with the finance function can often work against the company. And who is better suited for this job than a qualified CFO?
But what does a CFO do in a startup exactly? Apart from their financial responsibilities, they also handle issues from other departments. In this article, we’re going to define the role of the Chief Financial Officer (CFO) in great detail.
Who is a Chief Financial Officer in a startup?
In most companies, the CFO is the third most crucial officer below only the CEO and COO. They are tasked with handling the company’s cash flow and financial data.
But like every officer, a startup’s CFO job description is more varied.
While the startup CEO is usually also the founder, the CFO rarely enters the stage in the first few years. In the early stages, startups rely mostly on skills related to product development and technology. Due to their limited resources, they don’t need much help with managing their finances.
However, a startup CFO must be ready to handle more than just the finances. They’ll have several additional responsibilities such as networking and driving measurable value.
Early on, startups can’t afford an in-house accountant. They often don’t even need to do so. An external accountant can handle the math just fine during these infant stages.
The founders often skim through the monthly profits and losses report to see if the company’s doing well.
When the CFO enters the scene, they must be willing to take on more responsibilities than just finances. They need to be ready to assess the present situation and predict how things may change in the future. To reach this desired future, they must have strong financial planning skills.
What does a CFO do in a startup? – 10 major responsibilities
In the beginning, the CFO’s responsibilities will cover multiple areas. Before your company raises enough capital to hire a finance team, these tasks will all fall into your hands.
Developing strategies for different scenarios
Startup leaders usually deal with the here and now. While this approach has multiple advantages, it can lead to some issues too. They often overlook areas like debt management and proceeds investment.
As the CFO, it will be your task to cover these areas. You’ll have to devise the best financial strategy using your strong analytical and prediction skills. No matter what the future brings, it must see the company through it.
Handling the accounting
Very few startups can afford a full-time accountant. They often don’t need one because early sales tend to be low.
But as the company grows, the demand for financial skills will increase. As a CFO, you must understand how accounting looks in different companies.
SaaS companies witness few large payments over time. These are often stable and easy to work with. On the other hand, direct-to-consumer startups must tackle countless small payments at one time.
Handling the profits and expenses
Raising enough capital is one of the biggest challenges a startup must face. Without it, it won’t be able to reach the next level.
Low profits and high expenses can seriously cut into the company’s funds. As the CFO, you must direct this cash flow so the company can keep going despite the limited resources.
Offering financial advice
Every business to raise capital to function. To get this capital, a startup must apply for grants or loans. This process is very taxing, especially for an unskilled CEO.
That’s why having a CFO can be a huge boon. They can tackle these processes without much effort. This will lead to greater financial resources.
Developing financial strategies
Examining financial data can help the startup better adapt to the market. It provides vital information about consumer behavior and cost accounting, among other things.
As data processing technology grows, CFO often participates in business strategy development directly. Thanks to their expertise, they can better process financial data and use it to improve the startup’s business strategy.
Building and improving the financial framework
Since startups grow rapidly, so must their financial system. When the demand for the product finally rises, this system must be able to match it.
As a CFO, you must build a solid framework for such a system. And as the company grows, you must keep improving it along the way.
Handling legal issues
Finances and legal compliance often go hand in hand. A good CFO must be familiar with these laws to avoid endangering the company.
This knowledge often includes not only local laws but also foreign ones.
Overseeing human resources
An experienced financial leader must be ready to deal with the employees too. It only makes sense, since their paychecks are one of the major expenses.
This can come across as a surprise to some CFOs. Many are used to handling little more than accounting. Luckily, most startups have systems in place that makes tackling this task much easier.
Grooming the startups for the next stage
Startups exist to scale up as fast as possible. Their journey culminates in one of the following three ways: It either matures as a private company, decides to go public, or gets bought out.
Much of its infrastructure changes according to these transitions. The inner workings of a public company differ from those of a private one. Merging with another business can also shake things up a little.
The CFO must pave the way for these possible transitions and ensure that they will be successful.
Acting as the Chief Operating Officer
In startups, the roles of different officers are often fluid. While you will be a financial leader first, you might also have to handle business operations later down the line.
This includes managing multiple operation budgets so that they adhere to the general financial plan.
How can a startup CFO help a company? 6 essential qualities
In startups, the CFO isn’t just an accountant. They must also foster new relationships, help the company grow, and develop innovative financial plans. In short, they must help the company scale as fast as possible.
Here are 6 essential qualities of every good CFO:
Have good communication skills
Having solid financial skills isn’t enough, You must also know how to relay this information to your employees and executives.
Whether you can do this or not sets apart a great CFO from a decent one.
Know how to lead
While degrees and diplomas are always handy, they don’t mean much without good leadership skills. Since you’ll be high up in the hierarchy, you’ll need to know how to motivate and direct your employees.
Have a knack for strategic thinking
The CFO position calls for an innovative and visionary outlook. The path forward may often seem murky, but you can’t let this deter you. Instead, you must be willing to work with next to nothing even when all hope seems lost.
Think outside the box
Modern problems require modern solutions. You must be willing to leave the conventional behind and adopt a more innovative attitude.
Remember, startups don’t do things the traditional way. Instead, they try to find unique solutions to age-old problems. If you understand this, you’ll fit right in.
Have solid tech-related skills
Almost every modern business relies on technology. As the CFO, you should keep up with current technology trends and seek to automate as many processes as you can. This can earn you more time and free up some financial resources.
On the other hand, using digital services can expand your market presence and secure a loyal customer base.
Be well-versed in financial matters
Last but not least, an experienced CFO should come from a strong financial background. Since this is their primary role, companies will pay extra attention to your financial skills before they hire you.
When does a startup need a CFO?
Unlike other officers, filling the position of CFO isn’t necessary early on. Many startups can handle their early accounting with just the help of part-timers. They often can’t afford a CFO anyway.
During the seed stage, startups can often make do with a part-time CFO for the first three months.
Raising enough capital requires a lot of effort. Apart from reaching out to investors, startups must also assess their finance management. Having an experienced finance leader on your team can make this much easier. They can help you build a solid financial model and handle the reports.
But some startups don’t rely on venture capital. In this case, young companies often don’t need a CFO until the financial tasks become too overwhelming to handle.
As the startups grow, they must soon seek strong financial leaders that can tackle the piling-up work.
FAQ about what a CFO does in a startup
What is the role of a CFO in a startup?
A startup’s CFO manages financial strategy, operations, and regulations. CFOs aid decision-making and company growth with financial analysis. They develop financial plans, forecast revenue and expenses, manage cash flow, and monitor financial performance.
What are the primary responsibilities of a CFO in a startup?
Startup CFOs develop financial strategies and plans, manage financial operations, provide financial insight and analysis, oversee financial reporting, monitor cash flow, and manage financial risk. CFOs oversee investor relations, fundraising, and financial compliance.
How does the role of a CFO in a startup differ from that in a larger, more established company?
Startup CFOs are more involved in business operations than financial management. They may be involved in fundraising, investor relations, and other areas. CFOs in larger companies may focus more on financial operations, accounting, reporting, and financial analysis to support decision-making.
What skills and qualifications are necessary for a CFO in a startup?
A startup CFO needs a strong background in finance or accounting, experience managing financial operations, and knowledge of financial regulations and compliance. They should also be able to prioritize, communicate, and collaborate with others.
What challenges do CFOs in startups typically face, and how do they overcome them?
Startup CFOs must balance cash flow, fundraising, and strategic goals with short-term financial needs. New business ventures are risky and uncertain. CFOs must be strategic, adaptable, data-driven, and able to communicate with stakeholders to overcome these challenges.
How does a startup CFO manage the financial risk of a new business venture?
A startup CFO manages financial risk by creating a detailed financial plan, monitoring financial performance, and identifying and mitigating risks. Cash reserves, strong financial controls, and contingency plans may be needed.
What is the relationship between a startup CEO and CFO, and how do they work together?
Startups depend on the CEO-CFO relationship. The CEO guides the company’s strategy, while the CFO provides financial analysis. They collaborate on financial plans, cash flow, and performance.
How does a startup CFO raise capital and manage cash flow?
A startup CFO raises capital by creating a fundraising strategy, finding investors, and pitching the company’s vision and growth. They optimize cash flow by closely monitoring revenue and expenses, forecasting cash needs, and developing strategies.
What metrics and KPIs do startup CFOs typically focus on?
Startup CFOs typically measure revenue growth, profitability, cash flow, burn rate, customer acquisition costs, and customer lifetime value. These metrics help CFOs assess the company’s financial performance, identify risks, and make data-driven growth decisions.
How does a startup CFO balance short-term financial needs with long-term strategic goals?
A startup CFO creates a comprehensive financial plan to balance short-term financial needs with long-term strategic goals.
They must be strategic, identifying key investment areas that support the company’s long-term growth goals while managing cash flow and ensuring short-term financial stability.
This requires a thorough understanding of the company’s financial performance, strong communication skills, and the ability to work with others to achieve goals. A startup CFO must be flexible, data-driven, and prioritize long-term investments.
What does a CFO do in a startup? – Final Thoughts
A startup CF deals with more than just the cash flow and financial statements. Apart from expense management, they must be ready to deal with areas such as human resources and business plan building.
Hiring a good CFO can help a startup grow more rapidly. They help the company mature by adapting to new business demands and grooming the company for the next stage. Though not an essential role, it’s certainly a very beneficial one.
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