Paul Graham, co-founder of the YCombinator accelerator, wrote an essay titled How to Start a Startup in which he laid out 3 things every startup needs to be successful:
- Start with good people
- Make something customers actually want
- Spend as little money as possible
Notice he does not mention any finance or accounting function, let alone hiring a CFO. A primary reason being, the CFO does not directly generate revenue or help to improve the product the company is selling. The CFO’s role is fixated on saving the company time and money.
It is more of a ‘best guess’ when it comes to identifying the right time in your company’s life to bring on a CFO because each situation is unique. In order to make an educated guess, you must understand 2 things (at a minimum): what does a CFO do, and what do I stand to lose without one?
The following list sheds light on many of the primary responsibilities of a CFO:
- Establish long-term business goals and plans (3-5 years)
- Analyze the P&L to drive higher growth and profitability
- Build annual operating budgets that support business goals
- Determine funding requirements and uses
- Develop Key Performance Indicators and create live dashboards
- Understand and manage the capitalization of the company (the cap table)
- Forecast cash flow needs
- Determine how and where to deploy capital
With this understanding in place, you can ask yourself you can now ask yourself “How much money am at risk of losing by not hiring a CFO?”. This is more rhetorical than it is quantifiable, however, a CFO is likely to save far more money each year than the salary he gets paid.
*thanks to Scott Abels of Precision CFO Solutions for the assist on this post
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