Scaling to $20MM Series: When Does Your Growing Startup Need to Hire a CFO?
Founders need vision to scale their company, but it’s also crucial to have the right financial structure and people to support that strategy and measure its success. However, even if a founder is a financial wiz, building that necessary financial structure requires the right team, tools and processes in place to meet the demands of your growth.
For companies in growth mode who are looking to scale to that $20MM mountain, building the right team at the right time is no easy feat.
Having the right financial infrastructure at that point in your growth is key, because every measure is done with a view towards future growth. Even though you may only be sending out 10 invoices a month, you’ll want to build best practices of capturing the same information and building out the same processes that would allow you to scale to 1,000 invoices.
Is your team willing to roll up their sleeves and collect on small outstanding receivables? Do they have the foresight to set up processes to support the business one year-from now without over-complicating the day-to-day? Are they then willing to turn around, put on a suit, button their collars, and pitch the business and its vision to investors who may end up skyrocketing the business to new heights?
Looking back
When you started your business, you might have been the first “CFO”, or perhaps you had a business partner who had some financial experience and took over all of the books. As the company grows, you might have brought on a bookkeeper, or an accountant that could help with some of your basic financial tasks, such as helping with financial statements and efficient invoicing practices.
Yet a strategic CFO is a different role entirely. CFOs are big picture thinkers – ones who handle not only the company’s finances but also ensuring that those finances align with vision and strategy, and that there is enough recurring cash flow to support that growth. It’s someone who can focus on growth, profitability, runway, and reporting – usually all at the same time.
It’s a large role, and usually a proud point of ascent after years in the field. Except scale-ups have very different needs from most other organizations. The CFO of a scale-up needs to wear many different hats. Depending on the size of the team, they’ll need to deal with small day-to-day issues such as invoicing, sales tax, and payroll, along with focusing on larger growth initiatives to attract investors.
A scale-up CFO also needs to be watching for different things. They need to know how to ask the right questions – is the product-market fit working? Is the customer retention high? Is the right sales strategy in place? What happens if you lose your biggest customer? How do you allocate resources to generate the biggest return? Is your strategy working to keep you competitive in a crowded or growing marketplace?
These may not be the top concerns of a Fortune 500 CFO, but they’re real world issues for anyone in charge of a scale-up.
Looking forward
As your business accelerates, the right CFO for your growing venture is going to be a bit of a needle in a haystack. You might currently have a controller in place, who can help with the day-to-day financial tasks, but they generally don’t have the strategic mindset to push things forward. It’s a CFO who can understand where your business is today, what it will require to go, and can then lend their tools and expertise to get you to that next stage of growth.
The right CFO may not even be one distinct person, but may be different individuals over time depending on the company’s changing needs. The right person needs to be able to reach down into the most foundational parts of the organization – offering support to everyone from Marketing to HR to IT to the sales team, and seeing clearly where their role aligns in supporting each of those teams to keep the business running successfully.
At the same time, they also have to be able to reach for the skies. For a company to scale to that $20 million dollar level takes a tremendous amount of vision, enhanced knowledge and expertise (on regulations, compliance, financing needs etc.), and an ability to see what others cannot. The business and the team will look very different at those numbers, but the right CFO will be able to see the possibilities of success 3, 5, or even 10 years down the line.
Look beyond your own team
You might have worn the ‘CFO’ hat in your early days, but you should probably look to pass that hat off as you try to reach the $20MM mark.
At the $10MM mark your finance team has likely grown to 3 or 4 people, including potentially a CFO who oversees a small team to handle all of the day-to-day tasks. Yet the harsh reality is that while that CFO may have been the right person to get you to $5MM or $10MM, they may not be the right unicorn who has that incredible reach, and who can get you to the next stage of your growth where investors are practically knocking on your door.
For instance, someone with extensive experience in the field might have the investor relations piece down, but they’re likely too senior to deal with a lot of the smaller day-to-day tasks, and their salary demands will be well out of budget. Or vice versa, FP&A is their thing but not the market piece.
If you’re struggling to find that unicorn, you might want to look outside your team. It may be time to consider a fractional CFO team, which has the expertise to solve exactly these problems, at an hourly rate that won’t paralyze your bottom line. One of the best parts of working with a fractional CFO is their ability to bridge that gap, and keep things running smoothly until you find the right full-time hire.
Still, regardless of the stage of your company, minding your financial store at the beginning of your journey will make scaling so much easier and ultimately, make it more clear when it’s time to get that CFO-level help.