In our previous blog, we discussed eight compelling reasons for hiring a chief financial officer (CFO).
Did we convince you to join the bandwagon? Yes? Fantastic!
The right CFO will know how and when to implement the right systems, trim unnecessary expenses, and design well-planned, scalable processes to build future value for potential investors.
Now that we’re on the same page, this article will explore the key signs that indicate it’s time to bring a finance leader on board.
So, how can you tell when to hire a CFO? Let’s find out.
Sign # 1: When Your Financial Numbers Hit the Ceiling
“Startup finances are tricky. When a business reaches an upward of $15-20 million revenue, new founders often focus on the bigger picture and lose sight of key metrics like unit economics, cost of growth, and burn rates. That’s where things start to get a little hairy,” observes Wahaj Siddiqui, Managing Director of Oblique Consult. “It’s always better to have someone keeping their finger on the pulse, as operations scale and financial figures see a surge in both revenue and costs. If I’m spending millions on a certain expense, it makes sense to have someone closely tracking its return. Likewise, when my annual revenue thresholds increase, I’d like to hear an expert’s perspective on how to allocate budgets effectively.”
Sign # 2: When Your Company Has Capital-Intensive Plans
Perhaps, you want to grow your team, introduce a new product line, expand into new markets, or form more corporate entities. Maybe, you are considering investing in advanced automation tools for lead generation and customer relationship management. All of this means more capital and more expenses. Financial decisions that involve large sums of money are never simple. You must bring in a CFO at this point to guide you on the best course of action and handle all the associated tax and compliance protocols.
Sign # 3: When You Are Preparing for an Audit
Another sign that it’s time to engage a finance lead is when you are scheduled for an audit. Wahaj points out, “To navigate an audit successfully, companies require someone who can supervise the audit team and implement best accounting and auditing practices.” Having a finance leader with a comprehensive grasp of business dynamics can significantly ease these processes.
Sign # 4: When You Are Raising Funds
A CFO is key for companies planning large fundraising efforts. Not only can you leverage their extensive professional network, you can also make use of their broad understanding of different areas of finance. They have deep expertise in creating financial plans, preparing financial reports, analyzing investment returns, and ensuring compliance with regulations. They have good communication skills as well, and can negotiate favorable terms for all stakeholders.
Accurate cash flow projections are also important when raising capital for your startup. “Sometimes, even the slightest forecasting error can make a potential investor skeptical about your business model. In the worst case scenario, they might reject your investment proposal altogether. So, if you struggle to provide accurate cash flow forecasts for a quarter or at least a six-month period, it’s probably time to start looking for a CFO,” Wahaj adds.
Key Considerations When Hiring a CFO
Determining the right time to onboard a CFO can be tough. If you hire too early, the costs may strain your budget. If you wait too long, you risk missing key opportunities for growth.
Historically, businesses typically wouldn't hire a full-time CFO until they hit an annual revenue of around $50 million. In fact, many companies opt for a controller when revenues fall between $1 million and $10 million.
Although a controller can oversee all accounting activities, manage bookkeeping staff, and serve as an interim CFO for the CEO, a business generating $1 million in revenue can greatly benefit from the financial expertise that a part-time CFO provides.
When to hire a CFO, however, depends on several factors:
- What is a company’s financial situation?
- What does the competitive landscape look like?
- How do market dynamics influence a business?
- What are a company’s growth ambitions?
- How strong is the financial acumen of the existing team?
To help you assess the timing of hiring a CFO, rate the following statements on a scale of 1 to 10, with 1 being "not at all confident" and 10 being "completely confident":
- I can secure and advance beyond a Series A funding round without a CFO.
- I can manage corporate tax compliance and maintain revenues above $10 million annually on my own.
- An accountant can help me with financial reporting and modelling based on historical data.
- I have a good understanding of cash flow, profit and loss, and overall financial health of my business.
- I have the resources and systems in place to scale my financial operations as the business grows.
Wrapping It Up
Simply put, the decision on when to hire a CFO should align with your company's growth stage and specific requirements. If you're facing challenges with growth, transitions, or restructuring, bringing in a CFO sooner rather than later is always beneficial for two reasons: it will help you fill gaps timely and keep your strategic initiatives on track.
Can’t hire a permanent resource? Onboard an interim CFO instead. Contact Oblique Consult today!
