As a startup requires significant attention to detail and rapid execution in each aspect of your business, you as a founder will likely find yourself very much involved in all areas of the startup; product development, marketing, financing, and team building are just a few of the many aspects that require your attention continuously.

Because of the fast-paced and fluid nature of a startup, it is easy for many founders to misunderstand that understanding your startup’s financial leadership functions as being something that can wait until the startup reaches a certain size or growth level.

However, understanding the CFO’s impact on your startup at the earliest stages will greatly affect the long-term success of your startup.

While financial leadership is managing numbers, it is also providing a clear path to your startup through the creation of clarity, supporting strategic decisions, and ensuring that your startup’s growth will be based on sustainability.

The Role of the CFO

As a CFO for a startup, your job is to provide direction for the financial well-being of your startup while working with the business to ensure that your startup’s financial strategies align with the goals of your startup. Different to traditional CFO’s working in already established organizations, a startup’s CFO must work in an environment that is high in risk, limited in resource availability, and rapidly evolving.

Therefore, the CFO is responsible for not only the financial well-being of a startup but also helping the startup’s management team develop plans for the startup’s future growth. Specifically, the CFO is responsible for many tasks including budgeting, cash flow management, developing forecasts for the future of the startup, ensuring compliance, preparing reports for investors, and developing strategic plans to aid in future growth. In several situations, these early-stage responsibilities will be filled by an outsourced or fractional CFO who will act in a high-level role providing positive financial guidance to the company without the expense of hiring a full-time executive.

Utilizing Financial Strategies to grow

A CFO’s role within a startup exceeds merely helping the startup’s executives understand and utilize their startup’s financial data. As the CFO, your ability to leverage financial data into actionable information will increase the potential for you and your startup to succeed together. The reason for financial leadership is to give early-stage founders a framework for making informed decisions about which investments to make first based on how cash flow impacts their runway, not just how much money is in their bank account today.

A startup CFO helps early-stage founders create realistic budgets and cash flow forecasts so they can make better hiring decisions, develop better products and grow into new markets. Financial leadership gives early-stage founders a way to take an intentional approach to growth, using data rather than assumptions about where their company is headed.

Cash Flow, Burn Rate, and Runway Management

For early-stage companies, managing cash flow is critical to survival. Even the companies that are most likely to succeed may fail if they don’t have an accurate understanding of how long their cash will last. A CFO helps early-stage founders create realistic budgets and cash flow forecasts so they can make better hiring decisions, develop better products and grow into new markets.

CFOs provide early-stage founders with the information they need to effectively manage their finances by monitoring cash inflow and outflow, calculating burn rate, and updating runway projections.

With better visibility into cash flow and runway projections, early-stage founders can plan their fundraising efforts much more effectively rather than reacting to the pressure of needing money. By having a better understanding of their cash flow, a CFO helps create a more responsible approach to spending, with the goal of maximizing the potential of the company to achieve specific milestones.

Investor Readiness and Financial Reporting

Investment professionals expect transparency, consistency and professionalism when considering financing or investment opportunities with start-ups. A CFO is the principal author of the financial materials that investors receive, including financial statements, forecasts and performance metrics.

In addition to providing early-stage founders with the data they need to make informed decisions, financial leadership helps early-stage founders tell the story of their business in a clear and compelling manner. Properly structured financial reporting builds investor trust and demonstrates that the company is being operated in a responsible manner.

Compliance and Risk Management

As a company grows, it has more regulatory and tax obligations, and founders may be at risk of not meeting their compliance obligations without having an accurate understanding of what those obligations are. A CFO will ensure that all financial reporting, tax filings, and internal controls are accurately prepared and properly submitted, in a timely manner.

If founders want to reduce the likelihood of experiencing issues with regulatory compliance or tax compliance that may interrupt operations or damage their credibility with investors and partners, they should address compliance issues early in the life cycle of their company.

When Do Startups Need CFO-Level Guidance?

Whether or not a startup is large enough to justify hiring a full-time CFO at the beginning of operations depends on the startup. However, it is likely that most founders do not realize the benefit of having access to CFO-level guidance earlier than they think. This is where outsourcing or fractional CFO services become very valuable.

Having access to experienced financial leadership allows founders to focus on growing their companies while making sure that their financial decisions are structured, strategic, and aligned with their long-term goals.

Financial Leadership Is the Responsibility of Founders

Financial leadership ultimately starts and finishes with the founder. Financial leadership requires understanding the major aspects of financial reports, knowing how to ask the right questions, and using financial information to guide decision making.

The purpose of a startup CFO 101 course is to teach founders how to leverage the strategic value of financial leadership from the beginning and have a clear understanding of how to incorporate financial leadership into the culture of their company. A course does not teach the technical details of accounting, but instead, focuses on helping founders recognize the strategic value of financial leadership and, therefore, take financial leadership seriously and incorporate it into the company from day 1.

When founders embrace financial leadership and work with experienced advisors early in the life of their company, they set the stage for making more strategic business decisions, thus creating a foundation for smarter growth, stronger relationships with investors and long-term stability for their companies.