Posted by Kanika Sinha
July 20, 2021 | 4-minute read (689 words)
Being neither steady nor stable, the financial operations and needs of startups and early-stage small businesses can be complex and time-consuming. And without having someone dedicated to managing the resources and overseeing these responsibilities, it is likely that they get into financial trouble.
That’s where a chief financial officer, or CFO, comes in — driving your finances up and right. But hiring a full-time CFO may not be viable for such bite-sized businesses; this is where outsourcing the role can help.
An outsourced CFO gives you access to the right expertise to support your business without compromising on its bottom line or having to arrange additional infrastructure to maintain the position as a full-time role.
Here’s how outsourcing CFO services can steer your business to success and stability.
Managing cash flow
Funding runway constitutes a major challenge for startups — that is having enough money in place to manage to their next round of funding. In fact, struggling with high costs and low to nil revenues, most of them are likely to blow through their entire initial capital way before establishing a market presence. This is where a fractional CFO can help.
Acting as the steward of resources, CFO can help in managing expenditures and preventing costs from getting out of hand, hereby making sure there’s money in the bank and the firm stays solvent during its most challenging early years.
Offering new insights, financial data can help improve cost accounting, better understand consumer behavior and much more. Owing to the increased use of data analytics in businesses, the role of the CFO is quickly expanding to include being a business strategy adviser.
Gleaning the rich data collection, CFO can help comprehend the available metrics in the right manner and develop data-driven powerful strategies that can help businesses compete better with their peers.
To move to the next level, startups need ample money. This process usually involves approaching venture capital firms and trying to secure Series A and gradually Series B funding.
The CFO plays a vital role in getting the company ready to raise capital. They can help manage the due diligence, financial planning and get necessary KPIs in order. Additionally, they can help spend that money wisely so that the funding received has the greatest impact on the business.
Grabbing new opportunities
The CFO is the visionary for your company. They find ways to say "yes" to new business opportunities. If they can’t devise an action plan or timeline, they will help you devise alternative approaches so that your business achieves the desired result.
Building efficient infrastructure
By helping build a strong foundation, the CFO can prepare a startup to successfully handle changing business conditions as it grows.
For example, if the customer base swells a hundredfold, a lack of adequate financial systems to handle that increased demand can put the business at risk of losing momentum and customers. This is where an experienced CFO can step in and institute scalability in almost every aspect of the business including payment processing, payroll operations, human resources, accounting systems.
Prepping for the next stage
Provided the business doesn’t fail, over time a startup matures and may plan expansion, issue an IPO, merge or get bought out.
Part of a CFO’s role is to prepare the early-stage business for eventualities and ensure a smooth transition. For example, while going public, they chalk out an action plan outlining the steps in detail for businesses, from hiring investment bankers, underwriting, to filings, announcements.
The CFO also helps you make the best decision as you get ready to expand. For example, which markets you should target while expanding internationally, and what kind of return can you expect? They can also assess when you may need to hire more staff.
Or, in case you are planning to invest in a new venture, the outsourced CFO can advise when and how much to invest, and when to double down or pull back. By modeling all the possible outcomes of the expansion/investment, they can help you understand the pros and cons of your plan before going ahead.