Hiring a Startup CFO – When to Hire a CFO and Why You Need One
Hiring a CFO for a startup is a hotly contested topic. On the one hand, a CFO could bring a robust and profound financial perspective, but on the other, the financial resources required to hire one are well beyond some of the startups.
Knowing when to hire a CFO for a business is crucial to help your business scale. But the timing depends on the business understanding its eventual needs.
One of the best methods of identifying when it’s time to transition from your lean financial team to a CFO is by using the business hierarchy of needs.
Financial Hierarchy of Business
There are five levels of financial hierarchy in business. Each level dictates the needs of the business as well as the skills and insight required to meet those needs. Basic needs require basic skills. As the needs progress, the required skills become more technical.
- Level 1: Transacting — This is the most basic level of the financial hierarchy. It’s the business’s ability to buy and sell goods and services or entering into contracts. For startups, basic transactions only require basic record-keeping, which doesn’t require any financial knowledge or accounting. For businesses at this level, checkbook accounting is the best and most recommended method of record keeping.
- Level 2: Record Keeping — As the complexity of transactions increases, the skills required to record the transactions also increases. At first, the role can be filled by a bookkeeper. But as the transactions become more complicated, an accountant can fill the spot. An accountant is trained to a higher professional standard and has better skills to guarantee the completeness and timing of all financial transactions. The accountant’s accounts should be prepared in compliance with GAAP and meet rigorous reporting requirements should the company one day seek external financing.
- Level 3:Trusted Reporting — Reporting is more than indicating the transactions of the business. It includes indicating the revenue and costs of various departments and the business’s different undertakings, like customer service. Having a comprehensive reporting system with all the systems of sources aligned makes it easier for the business to capture all the data in the reports. If you don’t have a sound reporting system or you’re in the middle of creating one, DevReady can help. We have a team of outstanding and qualified on-demand developers that can help you create a system customized to your business’s needs.
- Level 4: Financial Planning — Using accurate historical record-keeping, businesses can assess potential pitfalls and shortcomings and, most importantly, plan for their future. Financial planning is particularly important for companies in a rapidly changing business environment. A company in this level of the financial hierarchy will greatly benefit from the presence of a CFO.
- Level 5: Strategic Partnering — Businesses at this stage require the most from their financial team. A seasoned finance leader who understands where the business is currently and where it is headed to build strategic partners is invaluable at this stage. As such, businesses at this level might find it difficult to function without a qualified CFO.
Why Startups Should Hire a CFO
When to Hire a CFO for a startup is not a matter of time but the business’s level as indicated by the financial hierarchy of business. Some of the reasons that would push you to hire a CFO include:
- To create strategic vision and judgment for the business
- To enhance your analysis, modeling, and forecasting abilities
- Increase functional and intellectual dexterity
- Build and manage an agile infrastructure for the business
- Foster a strong moral compass and judgment
- Encourage accurate risk assessment and mitigation skills
Having a CFO at the right time and for the right reasons is vital for every business. But so is having the right systems that allow proper record keeping. At DevReady, we can provide your startup with all the programming and coding needs with a talented pool of experienced on-demand developers.
To find out more about our platform and the benefits you and your business stand to enjoy by using remote workers, schedule a discovery call with us today.