Hiring a Startup CFO – When to Hire a CFO and Why You Need One

The term CFO often sounds big, unaffordable, and a reserve for multibillion-dollar companies. It’s no surprise that start-ups don’t entertain the idea of getting one. In any case, a finance team should be able to handle the financial bits of a business that really matter, or so they think.

These insinuations are born out of fear and not concrete evidence. CFOs tell you whether a financial investment is feasible or not, they identify the business’s standing according to its financial strengths and weaknesses, and ensure the financial reports are accurate to the last dime.

If you’re holding out on hiring one, you should ask yourself whether their contributions are something your business presently needs or not. This depends on your unique set of needs. Use the following criteria as a guide to decide your hiring options depend on your business level.

Hierarchy of Needs

Psychologist Abraham Maslow came up with a hierarchy of human needs that even businesses also go through under different titles.

Biological. These occupy the bottom of the hierarchy and are driven by an instinctual need to stay alive. They include health, food, shelter, clothing, rest, etc.
Security. The need for safety comes second in the hierarchy. These needs, therefore, demand order and laws that ensure safety or preempt danger.
Need to Belong. The need for love and belonging occupies the third tier. They form out of people’s natural inclination to interact and connect with other human beings and form relationships.
Value/esteem. Esteem is about being recognized by others, societal status, and getting respect from self and others
Self-Actualization. The last tier involves self-actualization where a person seeks to achieve their full potential.

The skills required to run a business progress in-step with the progress in business needs. Any business person with basic math knowledge can handle record-keeping. But as you go up, you’ll need strategizing and financial consultations.

The pace of growth is unique to businesses depending on a host of factors, for example, opportunities, talent, and resource abilities.

From a business sense, Maslow’s hierarchy applies in the following tiers.

1. Ability to Transact

Buying and selling occupy the bottom tier as the most basic forms of business transactions and needs. Recording these transactions requires no professional financial background.

It is also affordable and takes little time to decide whether the business is doing well or not. But businesses can only stay here for so long. As more and larger transactions come in, they’ll need professional accounting.

2. Record-keeping

It’s easy to get by without professional help with finances at this level. Professional accounting calls for accurate record-keeping done by bookkeepers or accountants at a more advanced level. Small business owners can do this themselves for a short while.

But there are consequences to this choice. An accountant is trained better than a bookkeeper. Therefore, they are more reliable in determining the accuracy of business transactions.

The smart thing to do for small businesses is regularly outsourcing accountant services to review the bookkeeping. There is software too that deals with inaccuracy. But software needs to be handled by a more professionally trained mind.

3. Reliable Reporting

Accurate record-keeping of transactions forms the foundation for reporting. Reporting comes from departments rather than the business as a whole. The point is to produce and give information about transactions at different levels in a way laypeople understand.

This can be done by a bookkeeper in some cases. In other cases, businesses may have to hire a CFO or outsource for one.

Young businesses tend to use unreliable sources for their reporting and end up with a ‘what if this data is inaccurate’ problem. It’s up to business owners to decide what helps them sleep better at night.

4. Financial Forecasting and Planning

With accurate records of transactions, histories, and analyses of the factors that caused gain or loss, businesses can use this info to perform financial forecasting. These forecasts should project goals to be met within a year.

These forecasts include profit and loss statements, capital expenditure, and cash flow statements.

Owners and executives can then strategize to meet the projections. The finance department works to avail resources to meet the goals within the specified budget.

Businesses at this level need extensive expertise. Outsourcing may not work well either because of the need for extensive and continuous consultations with management. It’s better to hire an in-house CFO.

5. Forming Strategic Partnerships

A seasoned finance team should be able to forge strategic partnerships between itself and other departments as a crucial part of the process. Businesses achieve this only when they understand how far they come and how far they want to go.

The result is a strategic vision that includes pricing over long periods, expansion, relevant analyses, and other top-level decisions. This level demands the expertise of experienced CFOs on the team to stay on track.