The typical startup is born in an entrepreneurial environment driven by one or two individuals. The primary if not sole focus is on growing the idea behind the business and putting it into action. Too often, unfortunately, the financial function in the enterprise is neglected or not addressed at all. Cost is usually the overriding factor and with CFO’s and Controllers commanding salaries of hundreds of thousands of dollars, it easy to see why small startups are reluctant to make these kinds of investments and choose to understaff their finance departments. On the other hand, the presence of a competent financial professional greatly enhances the chances of a startup’s success. One solution that allows the enterprise to access sound financial support without incurring the expense associated with it is to utilize Fractional Chief Financial Officers and/or Controllers. These professionals are typically offered through Accounting Firms or can be contracted with directly and offer the following benefits to the startup:
Startup Capital
Solid capitalization is essential to the success of the startup – a lack of it is the reason approximately 90% of startups fail. Fractional CFO’s can bring a wide range of experience from a variety of industries. In addition, a seasoned professional often has a “rolodex” containing a list of potential investors. They can create Investor Presentations, which can summarize the business plan, financing needs, management bios, product descriptions, and financial forecasts. Many also have strong banking relationships which could lead to additional capital as the business grows.
Resource Management (Better Cash Flow)
Fractional CFO’s can implement internal controls designed to maximize cash flows and protect the assets of the startup. This can range from accelerating accounts receivable collections through customer discounts for early pay and the use of a lockbox. Tighter control of inventory purchasing by using approved purchase orders and implementing strict controls for receiving inbound products are helpful in reducing unnecessary or in some cases fraudulent cash expenditures. In addition, where possible, proper segregation of duties can reduce or eliminate instances of theft. All these controls and more can be brought to the table by a Fractional CFO to keep your Balance Sheet better balanced and your assets protected.
Best Practices
The right Fractional CFO with relevant experience in the industry of the startup can be an invaluable tool to the business. They can implement policies and procedures using those experiences that can benefit your startup. This can include ensuring your business is adequately insured, proper registrations with state governmental agencies, suggesting accounting software that might be best suited to your industry, proper set up of accounts, formatting of reports, evaluating the credit worthiness of existing or potential customers, costing conventions, establishing banking relations with banks that may have expertise in the industry, etc.
Accurate Financial Health of the Startup
You cannot run or manage your startup without knowing where you are financially. Fractional CFO’s can be a great resource to you in getting there. Whether reviewing journal entries for accuracy, verifying bank reconciliations, reviewing aging reports, preparing account reconciliations, or preparing and presenting financial statements and reports, accurate, timely financial information is invaluable to successfully operating any business.
Grounding Force
Fractional CFO’s are not employees of the startup. They are outside professionals that bring financial expertise to the business. As such they make a good business partner for the entrepreneur who often does not have a financial background. Fractional CFO’s are independent and impartial. While their purpose is to help the startup succeed, that impartiality serves a solid back drop for management. It is always valuable to have a second set of eyes, from a financial point of view, available for those important decisions.
A successful startup involves balancing the need to manage money and make critical hires. Fractional CFO’s typically cost on average $300/hour, or $3,000 – $5,000 per week for 10 – 15 hours of work. A full time CFO, along with an accountant/bookkeeper can easily top $400,000 annually, so from a cost perspective, Fractional CFO’s can provide the startup financial expertise without breaking the bank. A strong CFO presence will ensure your business is moving forward one step at a time, which could be the difference between the success or failure of your business. The Fractional CFO is a valuable business partner who provides the expertise, experience and insight needed to grow the business without the need for a full-time team or a large financial commitment. They are a valuable asset to both your business and yourself.
