Outsourced CFO solutions for startups and high growth businesses

As businesses grow and start raising capital, the need for accurate and timely financial information grows as well. The business’ executive management and investors will need to understand the numbers in greater detail to support their investment decisions and consider further funding.

Many founders and CEOs will look to hire an experienced CFO at this stage of the business lifecycle and while this may seem like a good decision initially, there are some immediate pitfalls to hiring a CFO at this point.

In this article, we explore the challenges of hiring a CFO and why we recommend outsourcing the CFO function and role for rapidly growing businesses.

Challenges in hiring a CFO

When raising capital, adequate preparation is key. This is particularly true when a business is preparing for venture or growth capital and determining how much to raise. Not only should financial information be provided to investors in a fair and timely manner, providing expert analysis and insights into the business’ financial information is critical to the pitching process and for investor reporting.

This is particularly important when a business receives a significant investment from a sophisticated investor who may ask for different metrics to the founders. Without sufficient preparation of this information, investors and venture capital firms may lose confidence in the business, which in turn may affect the business’ negotiation power.

Prior to the capital raising process, CEOs will often hire an experienced CFO to analyse the business’ financial information, provide strategic insights, and add value to the executive leadership team. Following the initial investment there are two main roles that a CFO would carry out - the first is to implement better reporting and financial controls, and the second is more strategic in nature, with a focus on investor and board management. Rather than hiring a full-time CFO who may be better suited to one or the other, an outsourced CFO may be a fitting solution for the short term.

Experienced CFOs will come at a significant cost

An experienced CFO will demand a salary that will be among the highest in the business. They often require a support team around them too, as the business will ultimately not pay an executive level salary for basic bookkeeping. As such, when hiring a CFO, further staffing and salary costs may need to be considered.

Finding the right CFO takes a lot of time and resources

The CFO is a crucial position within the business as one of the most trusted advisors to the CEO, and in some instances, they might be slated for the CEO role in the future. It’s vital that a business finds the best person for their CFO, but this is a time consuming and costly exercise that should involve a proper executive search and screening program. The delay in finding a good CFO, screening them, negotiating remuneration, discussing additional staffing, as well as the time for them to on-board and review the financial status of the business, may ultimately push a business’ capital raising timeline out and reduce their existing runway.

While having an in-house CFO is not without its benefits and is recommended for more established businesses, startups and high-growth businesses should weigh up their immediate needs against the potential costs that may arise from an in-house CFO.

Outsourcing the CFO function

This is where the outsourced CFO can be extremely useful; outsourced CFOs are experienced CFOs who are often servicing multiple clients. An outsourced CFO can flex their time as required by the company, providing more advice and service when an event (such as a capital raise) is happening, and less when less is required. This reduces the cost of the outsourced CFO to the business.

Outsourced CFOs can provide a viewpoint from different industries as they generally have experience across multiple industry sectors. Their unique perspectives bring new ways of thinking to the business and can provide novel solutions to problems that may otherwise be approached in a conventional manner.

The first step to engaging with an outsourced CFO, or any CFO for that matter, is to understand the need of the business and the challenges to be faced. This is the fundamental question that many businesses miss when deciding whether to hire a CFO. With this understanding, founders will need to review their options and whether they need a full time CFO with attendant costs, or whether a part time outsourced CFO would suit the needs of the business.

Key takeaways

The CFO is a pivotal position within any organisation, and whether it is an outsourced CFO or a full time CFO, the decision needs to be made in a considered manner. Hiring the wrong person for the role can be detrimental to the business and cause a lot of issues in the long run.  As with any executive hire in a leadership team, having an empty seat is better than having the wrong person in it.

An outsourced CFO can be a good fit for a growing business, and is a cost-effective solution for a full-time, in-house CFO. Our outsourced CFO function can assist businesses with:

  • Tax structuring for local and international expansion
  • Implementation of Employee Stock Ownership Plan (ESOP) for talent and founders
  • Effective and dynamic management and board reporting
  • Facilitation and assessment of grant eligibility
  • Preparing the financial reporting function in readiness for a liquidity event
  • Share register, capital table, and corporate secretarial management
  • Generally being a sounding board for founders who are trying to balance existing business operations whilst maximising opportunities for expansion
  • Positioning businesses in the best light for a successful raise.

Contact our CFO Advisory team to learn more about the benefits of outsourcing your CFO function, and how we can support your high-growth business scale its operations.