Mentors to small and medium-sized businesses often identify SMB’s greatest challenges  as time management, cash flow, and growth.

A huge question that these challenges raise for startups is not when to hire a full-time CFO but whether. The old rules about when to hire a CFO focused on when a startup reaches “meaningful revenue,” typically of $100 million or more, or when the founders and board start planning for an IPO or other significant liquidity event. But new rules, largely related to data-driven strategic planning, prevail today. A full-time CFO usually isn’t practical for cash-strapped, minimally staffed startups. Forbes has said that CFO is one of three jobs that startups should outsource.

Indications that a business may be in need of a dedicated financial officer could be internal or external. Mark Palker, director of CFO Consulting Partners, LLC, said in an interview with Forbes, “An important internal tipping point is when information that helps the business make timely and important decisions is not being prepared.” External indicators could include rapid growth and preparing for merger or acquisition.

At some point in the life of every business, a CFO becomes necessary to assess and manage the risks inherent in regulatory compliance, business environment, and human-capital investment; to provide financial analysis, due diligence and planning; and to improve cash flow, financial efficiency & profitability. Startups in particular need this kind of expertise. They need critical financial forecasting in a business landscape of unprecedented competitiveness; someone who can better ensure accurate financial reporting, aid investors in assessing the value and potential of a company, and promote regulatory compliance and sound accounting practices. This presents one huge problem for startups: CFOs are among most expensive employees a business can hire.

The Fix: Hire a virtual CFO

Also called interim, consulting, or outsourced CFOs, the virtual CFO is a financial expert hired on an as-needed basis, reducing your cost from that of a full-time CFO while providing the in-depth financial expertise you need. They are future-facing experts who can provide essential complement to historically focused controllers and accountants. Because vCFOs typically work (or have worked) for a variety of types of companies, they provide the added benefit of diverse perspectives and can mitigate against being settled into outmoded “best” practices or strategies.

Good organizations providing vCFO services today include Adam Shay CPA, CFOs2GO, Boston Startup CFO, Pacific Crest Group, and many others.

Adam Shay CPA, PLLC, based in Wilmington, NC, identifies a range of benefits that go well beyond merely improving cash flow. Shay himself has pointed out that many companies don’t have “that person who can bridge the gap between the numbers, operations and strategy.” A vCFO can do that and more. They can

  • Establish and refine your startup’s goals.
  • Implement KPIs.
  • Measure results and refine strategy.
  • Add value to borrowing and fundraising process.
  • “overseeing financial aspects of your business, such as budgeting, record-keeping, expense and ratio analysis, modeling, staff training, or custom design services for you”

It’s difficult to generalize when a vCFO becomes a startup’s best strategic option, but Shay finds that vCFOs works best for businesses garnering between $500,000 and $15 million in revenue. And firms offering consulting CFO services for startups are well aligned to the Build-Measure-Learn paradigm of lean methodology, agile in measuring results and honing strategy.

There is no standard set of qualifications required of vCFOs. But the Qualified Cloud CFO certification provided by the International Association of Qualified Cloud Accountants is one increasingly common qualification that is specific to financial professionals working in today’s tech environment. And given the plethora of networking and telecommuting technologies, the location of your vCFO is not as critical as it would otherwise be — although occasional on-site, face-to-face interactions are essential for the vCFO to fully understand your business’s context and culture.

Potential downside

It’s been correctly noted that because vCFOs are not a permanent resource, their ready availability — thus their reliability — may come into question. Timeliness, quality of work, and the scope of their responsibility could all present potential hidden costs. The key here is to use a professional vCFO with a proven track record.

Along with time management, cash flow and growth, the first and last great challenge faced by most startups is pacing. When you’re losing sleep over the condition of your startup’s financial strategy, the mentors at tekMountain stand ready to advise and guide you.


This blog was produced by the tekMountain Team of Sean AhlumAmanda SipesZach Cioffi and Beth Roddy with lead writer Bill DiNome.

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