So Your Investors Told You to Hire a CFO: What Are Your Options?

Is Your Business Considering Hiring a CFO?

Throughout my career I’ve worked with hundreds of businesses, but in the last 8 years I’ve focused on board-backed companies. As a fractional CFO, I usually have been called in when there is a problem or major change in the business. Examples of that would be:

  • The board or management company lack the financial information they need to make business decisions
  • There was turnover in the team
  • The board and management team are not seeing eye to eye*

*Often the solution to this issue is hiring a CFO with operating and investor experience to translate between operational and investor financial information. As well as organizing the financial information in an investor-friendly way, developing and reporting on key metrics, or simply presenting the financial information in a digestible format monthly. It’s amazing the difference clean, clear financial information can make in manager/board relations!

In the last few years, a new reason has come up for why people need my services.

“My investors told me to hire a CFO, but I don’t think my business is ready for that.”

After this off-hand comment from the board, the CEO will ask fellow entrepreneurs a few key questions and are often pretty surprised at the answers.

Question 1: Why do I need CFO support? / What does a CFO do?

To help answer questions from the board of investors and present financial information in a way that is meaningful to investors and business managers. But financial information isn’t just for investors, seasoned CEOs know that having a solid financial partner can make a huge difference in a business’s ability to grow and make critical financial decisions quickly.

Question 2: Why is my board asking me to find a CFO?

Frequently, the answer is three-fold.

  1. They are expecting your business to grow rapidly and know how critical it is to keep a close eye on the financial side of things so you don’t run out of cash or head too far in a bad business direction
  2. In order to do their jobs well and give you meaningful advice, they need clean, clear reporting including key metrics that require financial knowledge to produce
  3. They aren’t thinking about the cost, they just need good data and this is how they have achieved it in the past—getting the company to hire a CFO

Questions 3: How much will a CFO cost me?

A good tech CFO with 5-20 years of experience as a Director of Finance or a CFO at a start-up costs around $190k-$250k in base and around $250-$300k in total compensation—yes, that means equity. And a good tech CFO wants to hire a team. They will likely want the following team, if not immediately, over the next 1-3 years, depending on growth:

  1. An internal bookkeeper (at least senior accountant level). This will bring your bookkeeping services in-house and give your CFO more control over the timing/delivery of financial information.

    Cost: $80k base, up to $120k all in, staff to include 1-3 people depending on complexity of accounting systems

  2. Depending on the number of transactions and complexity of your business, the CFO will next start looking for a controller. This person will have more in-depth accounting knowledge and experience than the senior accountant, will oversee their work (review of accounting entries is key to a solid financial close) and ideally have a CPA or strong GAAP knowledge.

    Cost: $120-$170k base, $160-$200k all in—if you can find one.

  3. As the team becomes established (and since you have given your CFO mouse a cookie and a glass of milk) next they will ask for a VP of finance. A VP of finance will help run all of the day-to-day analysis, ratios and keep the financial model/forecast updated monthly with updated accounting information. They will also assist with diagrams for board materials, help manage CRM data to get clear sales projection information for more accurate forecasts, etc.

    Cost: $120-180k base, $150-$220k all in.

  4. Not a team member, but frequently with more information comes more complex accounting systems, ranging from $15k on up per year with implementation consultants required to implement them.

Of course hiring this team, accounting for churn, bad hires and a difficult labor market could take anywhere from 6-18 months.

A New Team for Your New CFO

This new team will allow the CFO to be more effective at providing extremely accurate, timely financial information and also spend some of their time improving systems important for rapid growth.

Don’t get me wrong, in order to have proper GAAP, accrual accounting data and update an Excel-based operating model, this level of team and the checks and balances are recommended for a company as they grow (hopefully rapidly) to a $100 million revenue business.

The question is: Is your business ready and able to support $300k-$1.0M in team expenses? And can your wait 6-18 months for greater financial clarity?

If your financials aren’t terribly complex (complex meaning usually more than 100 employees or $10million in revenue), you can hire:

  1. An outsourced bookkeeping firm. This team will usually come with a fraction of a senior accountant + controllers time and cost between $1,500 – $8,000/month ($18,000 – $96,000/year)
  2. A fractional CFO firm. This team will come with a fraction of the time of a CFO lead and an FP&A analyst and cost $5,000 – $15,000/month ($60,000 – $180,000/year) depending on what projects they are taking on. Often they will oversee your accounting team, work on board materials, and may take on some operational items like accounting software implementation.

All-in cost is $78,000k – $276,000 per year depending on your needs and what fractional firms in your industry/geographic area cost. This is a fraction of the cost of an internal team. Plus, the most important aspect: you didn’t have to try to find good financial and accounting team members when you don’t have a financial background.

An Internal vs. An External Team for Your New CFO

To make sure you plan accordingly, accounting teams tend to take 2-3 months to fully onboard and understand your financial data. And fractional CFO firms take 6-8 weeks to produce a financial budget and board-ready reporting materials. Both of these will take a decent amount our your time (think hours on the phone) to get up to speed.

The key differences between a fractional versus a full-time team are timing and access to these people. If you need daily/weekly access to any of these team members—say your business is rapidly changing you may need a financial analyst on staff to help you run customer analysis and determine which customers are successful weekly. Or you have a complex set of financials and need an internal staff that truly understands your business. Or, your financials are simple, but you are planning to raise funds in the next 3-6 months and need a full-time CFO to work on a $10-100 million raise.

With a fractional accounting or CFO team, the real key is the timing of the numbers. Outsourced teams have other customers, meaning they are only actively looking at your company at certain times of the month and can provide financial information typically by the 15th or 20th of the following month. Usually, these firms do not provide interim financial updates due to the time-consuming nature of pulling together financial reports in Excel spreadsheets.

You will receive a report once a month, then sit down with your team (if it’s a good team) and review your financials to identify any errors or material changes in your business. This is also a great time to compare your financials versus the business plan/forecast to provide to your board and communicate any material variance (differences) to them. Even though board meetings often only take place once a quarter, updating your board on a regular (at least monthly) basis inspires confidence and better relations.

Or, at least, that’s how things were before machine learning technology entered the CFO services space.

Automating Data to Make Your Life Easier

Many of the things that take FP&A analysts hours upon hours per month, our founders realized, could be automated. A CFO still needs to review the financial information, but only with an eye toward accounting errors and understanding of how the business performed, no need to double-check Excel formulas throughout often 15 tab Excel spreadsheets. Often, identifying the source of an error in a spreadsheet can take even a well-seasoned financial professional several hours. And those errors are unacceptable to boards (or really anyone… who wants to make decisions with bad data?!), so they must be screened for, identified and fixed.

Enter: Machine learning. The most basic form of artificial intelligence with the power to eliminate even the possibility of mis-linked cells with cloud-based APIs that tie historic financial information directly to budgets/forecasts. This alignment is critical to business operators and investors being able to make decisions with the latest information.

Many outsource accounting firms (or internal accounting teams) have the ability to update financial information (they will call it “do reconciliations”) on a daily or at least weekly basis. This, combined with APIs and machine learning algorithms means you could be reviewing revenue updates versus budget as frequently as you’d like. It also means you can keep an eye on critical spend like marketing and travel expense throughout the month and make course corrections in real-time.

A Fractional CFO Paired With Machine Learning

Knowing how your business is performing against your plan throughout the month was nearly impossible, even with a full-time staff, due to the tedious and time-consuming nature of updating reports on a daily basis. You could dedicate an FP&A person’s entire time to this task, but that is a lot of money ($150k) to spend, and I’m not sure you could convince most FP&A analysts to stick around if you asked them to do that job—it’s a terribly tedious activity fraught with the opportunity of mislinked spreadsheets/errors to cause any financial pro stress.

Or… you could use a powerful machine learning algorithm specifically set up to eliminate linking errors. Oh, and this technology comes with your very own fractional CFO, who rather than spending their time each month updating and reviewing complex, error-prone spreadsheets, can simply focus on helping you grow your business and speak effectively to your investors.

AutoCFO’s machine learning technology has three critical advantages:

  1. Real-time data updates throughout the month (as frequently as accounting data is added) matched against budget targets
  2. Eliminates spreadsheet errors (stressful for both the CEO and CFOs)
  3. Accessible cost to CEO’s for access to high quality CFOs

Not to mention, the hardest position for most CFO firms to staff is finding people with expert financial modeling skills—it is one of those skills that requires 10,000 hours to be good at due to the challenging nature of identifying spreadsheet bugs. And here is a secret: Many seasoned, quality, strategic CFOs are very, very tired of looking for spreadsheet errors. They just want to help companies grow and a cloud-based machine learning technology enables us to take them out of the spreadsheet jungle and let them stay focused on helping companies.

Enter AutoCFO, enabled by our incredible technology and talented happy CFOs, AutoCFO has packages that are accessible to companies raising as little as $500k. And for companies raising A & B rounds and dealing with a board that “simply” requested “go hire a CFO” we have a package for you too. We play well with internal teams and can be slotted in to support a CFO in the VP of FP&A role, or for companies without a CFO, we have a strong team of well-seasoned board-ready CFOs that can help you maintain and improve your relationship with your investors.

We are the future of finance—and we don’t think you should have to wait until you raise over $100 million to have access to quality CFO services.