Does your start-up need a CFO? The case for a full-stack outsourced finance function for growth companies

Does your start-up need a CFO? The case for a full-stack outsourced finance function for growth companies.

There has been a lot of debate on when start-ups or growth companies need to bring on a CFO and/or start building out a finance function. Some VCs have argued that a company should be “well on its way to maturity” before spending time and effort in hiring an experienced (and expensive CFO).  A founder may view the finance function as tactical and believe a junior accounting resource to deal with the transactional bookkeeping tasks will be just fine. But when investors and board members require business analysis, financial planning, and visibility into financial position and performance, the accounting clerk will be quickly overwhelmed.

Increasingly, VCs, board members, and investors are looking at outsourced finance functions as a starting point for their portfolio companies, enabling them to build a solid finance foundation that can support their stages of growth until they are ready to either bring a CFO on board or build out a finance team.

Why do you need to start now.

Beyond keeping tabs on tactical issues like cash, paying invoices, and accounts receivables, start-ups and growth companies may not be thinking about the finance infrastructure required to support hyper-growth. Also, we often see earlier stage companies treat the fundraising process as tactical rather than taking a strategic, operational, and repeatable approach. As a result, each transaction becomes highly disruptive and distracting to the business.

 Having a solid foundation for finance infrastructure is almost equally as important to a growing startup as development/product infrastructure. Much like development builds a roadmap to plan out the development, progression, and stages of release of a product, companies also need a roadmap for their business – in the form of an operating plan.

Caroline Moon from venture capital firm Andreessen Horowitz cites a number of examples of the importance of an operating plan owned and driven by the finance function in avoiding costly business and strategy mistakes.  In one example, she references a company experiencing strong growth in a healthy market. They did not have a finance team or an operating plan. They were focused on keeping suppliers happy and would pay them as soon as commitments to customers were satisfied. However, they didn’t collect cash from their customers until 90 days later. This resulted in them burning through their cash much faster than planned and having to fundraise under duress creating unnecessary dilution. A strong finance function would have seen the working capital issues and resolved them, thus averting a serious issue (and impact on growth).

The outsourced advantage.

According to Moon, an outsourced “full-stack” CFO/finance function is a cost-effective and efficient option, offering a broader spectrum of knowledge and experience.  Companies gain some breathing room and time to hire a senior leader who can then they can then leverage that full-stack foundation as they build out the function.

A comprehensive, outsourced finance function should incorporate the full spectrum of strategy and tactical finance activities. Some things to look for include:

  • Financial planning and analysis that produces modeling, reconciliation, budgeting, forecasting revenue, cost and profitability analysis, against a set of defined KPIs for the business.
  • Integration with financial management and accounting that enables transaction processing, payroll, payables and receivables, tax, and regulatory compliance.
  • Cash flow, payments, and treasury management include FX (if required)
  • Investor management and communications including cap table management, preparing due diligence for fundraising (or exit) transactions and data room management.

Infinite CFO’s full-stack, outsourced finance function leverages repeatable processes to deliver a comprehensive view of your company’s financial situation while providing on-demand access to finance expertise. We have helped our clients lower operating costs, reduce monthly close cycles, and always be “due diligence ready.” Contact us to learn more about how we can help.