Whether a CFO is essential for a startup has been endlessly debated but the jury’s still out. While some believe a well-trained financial team can handle a startup’s needs, others say that CFOs offer deeper insights that help businesses think bigger for the future.

However, before you decide whether you need a CFO or not, there’s a very important question you need to ask yourself: “what does a CFO do in a startup?”

Here are a few important CFO responsibilities to keep in mind when you’re in the process of selecting one.

Managing cash burn rate

Cash Burn Rate is an important Key Performance Indicator (KPI). This indicates how much cash you’re spending each month. The Cash Burn Rate is the component that helps to calculate a company’s breakeven point.

When listing CFO responsibilities make sure you’re selecting a candidate who understands that the cash burn rate of a company needs to be monitored closely. This gives an estimate for when the company should expect to receive a return on investment.

A CFO should be able to work towards finding ways for the company to build a lasting relationship with customers. This is one of the surefire ways to reduce the cash burn rate of a company and make it profitable. Other ways a CFO should be able to accomplish this are through increasing the incoming cash achieved by increasing revenue or raising more funds, as well as decreasing its outgoing cash by reducing general expenses.

A CFO should be able to manage expenditures, ensure that the company can stay afloat during a crisis, and prevent unnecessary costs.

Judgment and vision

CFO’s responsibilities should focus on having a vision for the future leveraging critical thinking and strategic planning. They should be able to showcase their skills for value-creating initiatives and point out experiences where they have been able to execute them.

Do they have any plans or a vision for what your business could potentially benefit from adopting? What are some of their execution strategies? What does a CFO do in a startup? The answer is: A creative and visionary CFO is seminal to the organization finding a path towards long-term goals that might seem too farfetched at the moment.

During the interview, you should ask these questions to gauge how well-prepared they are for taking up CFO responsibilities and find out if they’re willing to take calculated risks or pursuing growth.

Risk assessment and management  

As a startup owner, you’re likely to be already familiar with how turbulent and unpredictable small businesses can be. Having a CFO that knows how to be on their toes, keep up with the changes, and managing risks while doing so is extremely important.

A large part of a CFO’s job is crises management. Where others see a problem, they should see an opportunity for growth. They are leaders who are focused on creating value for the company and are trained to think ahead.

A CFO should have the skills to develop and implement strategies when dealing with rough financial periods to benefit from explosive growth. Moreover, it is a bonus if they have experience with “turnaround”.

Have they had to deal with a deteriorating business and helped implement strategies to boost financial gains and overall growth? Always remember when wondering what does a good CFO do in a startup? That a CFO with such critical experience is going to be a long-term asset to your startup.

Strong moral compass

A strong CFO must have a healthy orientation and a clear sense of what drives profitability. Their focus should be on the company, and how any strategic or financial decision benefits them. This goes hand in hand with the ability to move and compel people with numbers and their analysis.

They ought to have incredible leadership instincts and that becomes obvious when you see their previous work. Moreover, they can inspire and build the next generation of finance talent, which is just as important for a startup that wants to improve its finances.

A CFO can counter their weakness by surrounding themselves with people with the same strengths and insights.

Building efficient infrastructure

An experienced financial expert can gauge the scalability of your startup in many areas, ranging from payroll to human recourses and even accounting systems. Having a strong foundation is key to a business’s financial scalability and a CFO should be able to help the company reach this goal.

If your business was to grow all of a sudden and your customer base increases tenfold, having a financial system that can support this increased demand should already be in the works and a good CFO will ensure that.

They should be able to grab this opportunity without losing momentum or customers and push the startup towards success. Remember to ask questions that allow them to use their experience and knowledge to come up with value-added strategies if there is a boom in the business.

Are they familiar with powerful tools that enable faster and easier data analytics? They should use these to their advantage. Thus being a good business strategist is part of being a CFO and knowing how to strengthen the infrastructure.

Guiding funding

Unless you’ve started a business using your own savings, you’re going to need investors for seed funding to be able to have an operational startup. However, the process of getting investors involved and having the analysis perfect down to T to make a compelling case is key.

What does a CFO do in a startup? They play a vital role in going to venture capital firms and trying to secure funding. They do so by managing the financial planning, making compelling arguments, and the due diligence required to attract investors.

After you’ve secured funding, a CFO’s responsibility also includes coming up with strategies to use that capital wisely so it can have the desired impact on your startup.

Once you have investors involved in your business, the pressure is on you to show numbers more than just board meetings. At one point the meetings might also get overwhelming if you can’t produce anything meaningful. This is where a CFO can provide context and add substance while ensuring that these meetings are as productive as possible.

A CFO’s role in startups vs. large corporations

The job of a CFO at a startup is somewhat different than that of a large corporation. Your business is on a smaller scale and there are more hands-on tasks for a CFO to tackle, and even intervene in day-to-day operational issues.

A CFO not only manages the company’s finances but is responsible for its growth, the relationships cultivated, and is seminal in establishing core financial processes that will remain for years to come. CFOs are members of the C-suite which is a term used to describe the most important executives in a company.

In a startup, a CFO influences the rest of the C-suite by driving the metrics and presentation of results. They are supposed to hold the management team accountable by showing what has been going on with the company’s finances. For that, a CFO of your startup will have to build have the skill to balance the role of being the enforcer for you or your CEO while being an advisor to the other executives.

Conclusion

If you are looking for a CFO to manage and drive your startup’s finances, a wise idea is to consider the services of a virtual CFO who can work with you as a consultant. It is a cost-effective alternative for quality finance management and advisory services.

See Also: What Is A CFO And What Benefits Do You Get From Outsourced CFO Services?

Monily works with several startups and small and medium-sized businesses to offer financial intelligence and insights specific to their business needs. For more information and necessary details on what does a CFO do in a startup and how you may leverage the services of a virtual CFO, you may get in touch with our experts.

Farwah Jafri

Farwah Jafri is a financial management expert and Product Owner at Monily, where she leads financial services for small and medium businesses. With over a decade of experience, including a directorial role at Arthur Lawrence UK Ltd., she specializes in bookkeeping, payroll, and financial analytics. Farwah holds an MBA from Alliance Manchester Business School and a BS in Computer Software Engineering. Based in Houston, Texas, she is dedicated to helping businesses better their financial operations.