Is it time for your startup to have a CFO?

Are CFOs a must for Startups? This has been a widely discussed the topic in the recent days. There are two sides to it. Some argue they are very much a necessity as they give financial perspective for the startup. Some argue it needs to be decided based on the need of the startup, the stage the startup is in at the moment.

In the lean phase wherein the startup is trying to gain the foothold, hiring a CFO means burning a hole in the financial wallet. Keeping the accounts in place is a need for any startup. To keep track of the cash inflow, cash outflow along with the contracts accepted and delivered to, need to be kept in place.

Based on the stage of the startup the need for accounting and bookkeeping arises in the company.

  1. Transactions

In the lean up phase, the following needs to be documented.

  • Agreement copies
  • Purchase and Sale Goods or Services
  • Payments made and received

These are the basic things that need to be documented. They are the agreements entered into, checkbook record transactions thereby giving the opening and ending balance before the transaction.

Maintaining a checkbook accounting is clear, cheap and takes very little effort. It can be done quickly and does not need anyone with specialization to do so.

  1. Keeping Records

When the startup has gained a foothold and has a steady influx of orders which is being profitable to the company, the need arises to keep track every flow and it also turns to be a requirement as it further helps the company to sketch for further growth.

  • Invoices/Check
  • Balance sheet of Bank Account
  • Payroll

This can be either done by an accountant or a bookkeeper or by the owner himself. The role here is to record the activity from transaction sources, such as bank balances and inventory. A bookkeeper needs to be overseen by an external accountant or the business owner. There is an option to outsource the bookkeeping service which does provide flexibility but needs the owner to have a detailed communications and review.

The edge an accountant has over the bookkeeper is that they are trained to higher professional standards and the accounts prepared by them is in compliance with GAAP and meets the stringent reporting requirements of a company in case it goes for external financing in the future

  1. Generating and Maintaining Accurate Reports

With transactions accounted properly, reports can be generated. Reports give a view of the business at that time. Reports can be generated either quarterly/half-yearly as per the requirement of the company.

Now, Fintech has made the comprehensive reporting affordable and robust than before. The criterion that needs to be clear before generating the reports is how they are going to be used. Although accuracy is an important to approach for reporting for internal and external purposes need not be same.

Reports mainly are used for communication. This can be accomplished by bookkeeper or an accountant who can convert the accounting information to meaningful communication

Reports are considered to be a success when they are thorough, accurate and complete which is a must when early-stage businesses are preparing to raise Serial A funding.

This is a phase wherein a CFO’s role becomes more evident. A CFO would be in a better position to take the records, slice and dice them up with deeper knowledge and judgment. In case you do not want to go for a full-time, you can always go for a part-time help from an external  CFO.

Reports generated will be in

  • Accrual Accounting
  • Manual Journal Entries
  • Tax Reporting
  • D & A Schedules
  • Fintech Integration
  1. Financial Planning

With accurate records on the history of the company in place, you are evident with the influential factors and shortcomings on the business. This, in turn, helps the owner to steer the business to the desired direction for growth in the company.

In short, accurate reports tell you where you are right now and help you to forecast where you want to be tomorrow.

Reports generated will be used in following areas

  • Rolling Forecasts
  • Variance Analysis
  • Tax Planning
  • Performance Targets
  1. Strategic Partnering

Businesses which are in the growing phase and looking for external funding and have expansion plans in the future need to go for the financial management team. This is the phase wherein the team designs the strategies which are to be implemented for long-term pricing decision, scenario analysis, international expansion, acquisition decisions and also higher level decisions. In turn, you are bracing yourself for setting long-term financial goals of the business.

Financial Team will be involved in

  • Capital Structure Optimization
  • Fundraising, Long-Term Planning
  • Pricing/Product Strategy
  • M & A

As the business evolves and grows the need to adapt to the financial need also arises. This too evolves with time. The business owner needs to be aware of the condition of the company at all times which is what the reports point at. The reports are used during tax filing and also while approaching for external funding or the banks. Reports can be financial, sales, advertising or marketing. It can be numerical or pictorial representation. Thus, the need is in demand with the progression of the business.

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