When Does a Startup Need a CFO?
A startup typically needs a Chief Financial Officer (CFO) when it reaches a stage where it requires greater financial management and strategic planning than the accounting team can provide. Usually it needs a finance, not accounting, person to scale its operations and secure funding. This often occurs when the company is experiencing significant growth or has complex financial operations due to size or the kind of business. The exact timing will vary based on the specific needs and goals of the company.
Why Does a Startup Need a CFO?
A CFO at a startup plays a critical role in managing the financial and operational strategy of the company. Some of the key responsibilities of a CFO in a startup include:
- Financial Planning and Analysis: Developing financial projections, budgets, and financial reports to guide the company’s decision-making process
- Fundraising: Assisting in securing investment funding from venture capitalists, angel investors, or other sources
- Financial Management: Overseeing (but not actively doing—that is the job of the accounting team or controller) the company’s financial operations, including accounting, tax, and treasury functions
- Risk Management: Identifying and mitigating financial risks to the company’s financial stability and success
- Regulatory Compliance: Overseeing that the company complies with financial reporting requirements, tax laws, and other regulations
- Strategy: Collaborating with other executives to develop and execute a long-term strategic plan for the company. This will include an annual budget and monthly or quarterly reforecasting
- Performance Monitoring: Tracking the company’s financial performance and implementing measures to improve it and assisting other team members in achieving their goals by providing key metrics and data
- Mergers and Acquisitions: Leading due diligence and negotiations for mergers and acquisitions
Overall, a CFO in a startup is responsible for maintaining financial stability and driving growth, while also providing valuable insight and advice to the company’s leadership team.
What Is a Typical Startup CFO Salary?
The salary of a CFO in a startup can vary significantly depending on factors such as the size and stage of the company, the industry, the location, and the CFO’s experience and qualifications.
In general, the average salary for a startup CFO can range from $150,000 to $250,000 per year, with the potential for significant bonuses or equity compensation. At later-stage startups, salaries can be higher, with top executives earning over $1 million per year.
It’s also common for full-time startup CFOs to receive equity as part of their compensation, which can be a significant part of their total compensation package. The exact terms and structure of the compensation package will depend on the company and the negotiation between the CFO and the company’s leadership.
If the company is not ready for a full-time CFO, in recent years there has been a move toward hiring a part-time, fractional or virtual CFO to support the company until it can afford or has a need for a full-time team member.
What Kind of Team Does a CFO at a Startup Need?
A CFO in a startup typically hires a finance team to support the company’s financial operations and reporting. The composition and size of the finance team will vary depending on the size and stage of the company, but it typically includes the following roles:
- Accountants: Responsible for managing the company’s day-to-day accounting activities, including bookkeeping, payroll, and tax compliance. As the team grows, a Controller will be added to lead this team.
- Financial Analysts: Analyze the company’s financial data and assist with developing financial projections and budgets. Often the first hire here is a VP of Finance, as the company becomes much bigger, that individual may hire additional team members.
- Treasury and Cash Management: Oversee the company’s cash flow, investment management, and credit facilities. Often until the company is of significant size, the accounting or financial analysis teams will help perform this function.
The cost of a finance team in a startup will depend on several factors, including the size of the team, the location, and the level of experience and qualifications of the employees. As a rough estimate, a small finance team of 2-3 people in a startup could cost around $250,000 to $450,000 per year in total compensation and benefits.
It’s also possible for a startup to outsource certain finance functions, such as bookkeeping and tax compliance, to reduce costs and increase efficiency. This also allows the company to scale more easily, using more of the outsourced accounting resource as needed versus hiring people internally. In such cases, the CFO will need to manage the outsourcing provider and ensure that the company’s financial needs are being met.
Does My Startup Need a Full-Time or Fractional CFO?
The need for a full-time CFO and finance team versus a fractional CFO in a startup depends on the size, stage, and financial complexity of the company.
Smaller (<$20million in revenue) startups may not require a full-time CFO and finance team and can instead opt for a fractional CFO, who works part-time or on a project basis to provide financial expertise and support. This can be a cost-effective solution for startups that are still in the process of establishing their operations and generating revenue.
As the company grows and the financial operations become more complex, the need for a full-time CFO and finance team increases. This typically occurs when the company is growing rapidly, raising a Series C or a larger Series B or the day-to-day operations are complex enough to warrant a full-time role. At this stage, a full-time CFO and finance team are needed to manage the company’s financial and operational strategy, ensure regulatory compliance, and provide financial guidance to the leadership team.
Ultimately, the decision to hire a full-time CFO and finance team versus a fractional CFO depends on the specific goals and needs of the company, as well as its available resources and budget.
Is AutoCFO a Good Fit for My Startup?
AutoCFO is a technology-supported CFO solution that provides financial management and analysis services to small businesses and startups. This offering is like hiring a portion of a CFO’s time with a full-time financial analyst that keeps all of your numbers up-to-date 100% of the time. It can be a good fit for startups that are looking for a cost-effective and efficient solution for managing their finances but do not have the resources or budget to hire a full-time CFO and finance team.
If your startup requires daily financial analysis, strategic planning, or fundraising support, then AutoCFO may not be the best solution. In such cases, hiring a full-time CFO or finance team with the necessary expertise and experience may be more beneficial.
Ultimately, the decision to use AutoCFO will depend on your specific financial needs and goals, as well as your budget and resources. Talk to a CFO today to find out if we’re a good fit for your startup!