When Should a Startup Hire a CFO?

A chief financial officer is a critical player in any organization. In charge of financial viability, managing cash flow, overseeing financial planning, ensuring regulatory compliance and other big-picture financial considerations that impact revenue, the CFO is truly a linchpin within an organization.

Despite the critical nature of the role, it can be challenging for organizations, particularly startups, to determine when they should hire a CFO. As an accountant and current CEO, I’ve found there are a few key instances when hiring a CFO is non-negotiable: in the growth stage, when you’re ready to go public or when the economy is in turmoil. I’ve also found a few key instances of when organizations shouldn’t hire a CFO, or at least wait to hire one.

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In the Growth Stage

Hiring a CFO is particularly critical for businesses that are in the growth stage. This includes startups that are ready to take on more as well as well-developed businesses looking to make changes. 

For startups, hiring the first CFO typically signifies a pivotal point that indicates a company is prepared for a more in-depth and specialized level of leadership and strategic planning. It’s an exciting time. CFOs can supervise an organization’s financial position from the start and identify problems before they become more extensive. 

While many startups don’t like the idea of spending a lot of money on hiring early on, spending money leads to better talent and product-market fit. Investing in a CFO is also critical to navigating the early stages and ensuring the organization sees success. As the business expands and more financial responsibilities pile up, the complexity of financial management increases. CFOs can lend expertise beyond the capabilities of most non-finance executives.

Additionally, CFOs can help startups perform accurate and quick forecasts and can help the startup build and manage strategic partnerships.

For organizations that find their finances to be messier than desired, a CFO can help make heads and tails of everything and will work with organizational leadership to develop a strategic plan and to sort out debts and obligations. 

Further, if the organization is struggling with standard finance concepts like financial analytics, cash-flow management and financial and strategic goal setting, consider hiring a CFO before the organization takes a financial hit.

When a Startup Is Ready to Go Public

Perhaps the most important time in an organization’s lifecycle to be supported by a CFO is when they’re ready to take on the next steps,  including going through an initial public offering.

While going public might be far down the road for a startup, it’s wise to remember the crucial role a CFO can play in getting an organization ready for an upcoming IPO. Ideally, they’ll have prior experience with a public company, be well-versed in the financial metrics of the business that’s going public and be familiar with its story, allowing the business to navigate this major moment properly and successfully. 

Additionally, for organizations that are going public, investors tend to feel more comfortable working with someone who has gone through the process before, who knows potential challenges that come with an IPO and has the ability to communicate finances around the event in a very transparent manner.

During Economic Turmoil

One instance when an organization should consider hiring a CFO is during a tumultuous economic moment. For example, in today’s economy, organizations are dealing with prolonged inflation, interest rate hikes, volatile markets and the continuously looming threat of a recession. 

While hiring a CFO can be a reactionary measure to this, CFOs can also provide support on day-to-day financial strategy, raise capital, optimize profit, avoid incurring new debt, assist with developing plans for the future and support existing team members. As if that is not enough, a CFO can help optimize financial performance, perform analytical measurements, make strategic plans and produce financial reporting, all key components to ensuring long-term business growth and success.  

While it can seem daunting to hire for such a large position in the face of a recession, CFOs are critical to ensuring the ship stays afloat even in the biggest storms. Finding a CFO who is dedicated to efficient, modern and accurate financial processes is perhaps the best way to ensure a company can survive economic turmoil. 

When to Skip the CFO

While these three instances are examples of when a CFO is practically a necessity, there are also times when startups should consider holding on hiring a CFO. For example, some companies may want to wait to hire an in-house CFO until they reach a certain amount in revenue. 

While hiring a full-time CFO has its merits, it may not be the most feasible option for startups or scaleups with limited financial resources. A fractional CFO supported by a part-time controller and accounting staff may be an ideal solution for businesses that need financial expertise but cannot afford a full-time team.

Finally, hiring a CFO can be time consuming, with the process averaging around 20 weeks, according to Jeff Constable, who leads the North American financial officers practice at executive search firm Korn Ferry. This is critical to keep in mind when considering hiring a CFO, getting stakeholder buy-in and securing budget for the role. 

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How to Harness the Power of a CFO

CFOs are critical to ensuring financial viability and regulatory compliance, and are helpful in managing cash flow, overseeing financial planning and so much more. 

While it can be difficult to determine when, exactly, a CFO should be hired, startups must remember that at some point, every single one of them, regardless of size, revenue, location or industry, must consider a CFO. It’s not a question of “if.” It’s a question of “when.” 

However, every company is different and hiring a CFO at the right time for one company may not be the right time for another. Despite this, it’s important to remember the advisory role of CFOs and the effect they can have on businesses at any level. Ultimately, CFOs are an incredibly useful tool in a startup’s toolkit, as long as they’re hired at the right time and for the right reasons.