Startup CFO: What Do They Do, and When Do I Need One?

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By Betty Kayton (President, Innovative CFO) A Chief Financial Officer (CFO) means different things at different times in a company’s history.

The CFO at Apple, for example, will spend most of his time on investor relations (keeping Wall Street happy) and overall strategy.

By contrast, the CFO at a startup with under 50 people will spend most of her time on operational matters such as:

  • designing/implementing systems
  • developing a library of forms (employment agreements, outbound software license agreements…)
  • administrative matters (employee benefits, liability insurance, leasing an office…)
  • negotiating customer agreements, designing commission plans
  • producing/reporting on financial matters (including board packets and commissions).

I call this “keeping the trains running on time”.

In most startups, the founders are “idea people” who have superb marketing, sales and/or engineering skills; but they usually don’t like spending time on admin/finance/HR.

Thus, having someone take care of all this “admin/operations stuff” lets the founders focus on building value, while being confident that their CFO is taking care of the details.

A good CFO is the right hand to the CEO. Think of Tom Hagen’s role as consigliere in The Godfather: Don Vito always sought Tom’s advice, even though the advice wasn’t always followed. That’s why the CEO sits in the corner office (or… cubicle…or Ikea desk): to make the final decision. But the CFO wants to be sure that the CEO is aware of the ramifications of her decision so the decision is carefully thought out and there are no surprises later. Having a CFO as Devil’s Advocate is handy.

CFOs also handle strategic matters such as:

  • raising money (seed/convertible notes, preferred stock)
  • raising debt (venture debt, equipment financing)
  • coaching CEOs (including how to manage a board)
  • keeping abreast of legal matters (how to terminate employees, making sure that all paperwork, taxes, etc. are handled on time, understanding/complying with privacy laws…)
  • managing the cap table/stock options, etc

When fundraising kicks in, there is a flurry of activity (usually for 2 to 3 months) which can be highly distracting to the day-to-day business if there isn’t someone who has “been there, done that” to manage the process and ensure that all of the paperwork is handled correctly.

Nobody ever bought a company because their financials and files were all in order. But buyers have been known to walk away (or reduce the purchase price) of companies whose records are a mess. Besides, it’s easier and cheaper to do it right the first time –- instead of having to go back (months or years later) to mop up.

OK… you’re convinced that you need some help. But when/where do you get this help?

With luck, your personal network already has some folks that have been through this before, so they can apply “pattern recognition” (having seen similar situations before). You need someone that you trust, so you’re not constantly looking over your shoulder, wondering if things are getting done on time.

The first admin/finance hire in a startup is generally an Office Manager who can pay the bills, do the payroll, enter things into Quickbooks, order office supplies and perhaps even handle customer service and/or community relations.

A super-organized and personable Office Manager makes a huge difference, and usually makes sense to hire when you have between 15 and 25 employees, depending upon the type of business and the types of folks working at the company.

And then you only need a part-time CFO to manage the Office Manager (answer questions, review the books, ensure everything is getting done on time, etc) and to help with more strategic matters that were discussed earlier.

But if the company has a complex business model, and/or is growing fast… then a full time CFO could make sense to hire when the company gets between 25 and 50 people. But there are no hard and fast rules. It all depends on the circumstances.

Editor's note: Got a question for our guest blogger? Leave a message in the comments below.

Photo credit: Dan McKay / Oranges and Apples on Flickr.

About the guest blogger: Betty Kayton has over 25 years of experience in the technology industry, as a key member of the executive team at high-growth, venture-funded startups. Her contribution ranges from strategic planning and fund raising to tactical challengers such as building appropriate infrastructure without stifling growth. Clients include CFO of Dropbox, Leapfrog toys, Nominum, Vuclip, MGA Entertainment, and senior financial management positions at Fortune 500 companies.