When launching your startup, it’s tempting to operate with a small team for as long as possible. Signing more paychecks than absolutely necessary can sound painful when you’re pinching pennies and accruing interest on loans.
But of all the corners to cut, personnel is not one of them. And of all the hires on your list, the most important is the chief financial officer.
After all, you’re only one person. You’re probably good at creating products, managing technology and launching marketing plans. You need to spend your time on creating, solving problems and deepening your understanding of your product and customers — not figuring out how to crunch numbers, fix a faulty Excel spreadsheet or manage receivables and payables.
A bridge over numbered waters
In startups, the promoter usually wears the CEO and CFO hats; however, it’s important to isolate these two roles. A CFO is the bridge between strategy and finances. He’s the one who can translate numbers into actionable items that allow you to move your business to the next level.
Your CFO is the one who will hold you accountable for operating a profitable business. He’ll be the one providing insights into how your current strategy is converting into profits (or not). It also doesn’t hurt that he can speak the language investors understand, which can give you the extra thrust that’s required to get to the next stage of growth.
Plus, companies that set up accounting systems early have superior growth rates in terms of revenue and head count. It follows that a CFO who’s starting with a strong accounting system can put his skills to better use, particularly by homing in on strategic consultation.
Finding your most valuable hire
For a small business, the CFO’s role should entail, at minimum, creating annual budgets, comparing budgets to actuals, setting up a cash flow management tool and assisting in monitoring cash flow. It would be great if your CFO also identified a few key metrics to keep in mind to gauge the wellness of your organization. When it comes to strategy, he should do scenario-based forecasting to help you chart the next six to 18 months.
To find the perfect CFO for your company, take these four steps:
1. Look for a creative problem solver.
Modern companies compete in a real-time, data-driven environment in which technology is transforming. A good CFO understands, appreciates and can take advantage of that transformation. However, the CFO should also understand that he’s not the be-all and end-all. The best ones are willing and able to speak with accounting professionals.
2. Find someone who gets your vision.
One study found that when it comes to one’s career, emotional intelligence is just as important as IQ. High levels of emotional intelligence allow the CFO to read the CEO’s mood ahead of key events, implement change into a longstanding team, manage the board and investors and know which of his specific skills (e.g., number cruncher, strategist or confidant) founders need without asking.
A candidate’s vision and ability to meet your expectations are almost always more important than his background.
3. Bring in a versatile but specifically talented CFO.
Your CFO must be able to speak about the business throughout the business. A good CFO can speak with HR managers about how productivity translates into profitability. He can speak with sales about how investment translates into closed business. He can speak to product makers or service providers about how creativity and innovation translate to a stronger product or service. And he can articulate it all to management and active and potential investors.
4. Hire someone who gets growth.
Your CFO should know what it means to grow a business and have experience working with a successful startup or growing business. Ask for success metrics, and call the references to confirm.
The earlier you hire a CFO, the better. During the startup phase, in particular, your accounting is the foundation of your business.
About the Author
Titu Agarwal is an account manager at SUM Innovation.