Whether your business is a new tech firm, a lingerie company, or a workable plan for the first colony on Mars, getting a startup up and running can seem an impossible task. Startups often have little to go on but a dream to make an impact and a rough business plan. The faith and ingenuity of the founders count for a lot when it comes to the success or failure of the venture, but startups, more than existing businesses, also need to handle serious financial concerns upfront. What you do as a Founder now has complex consequences with your value creation, equity and global tax optimization.
There can even be more financial issues involved in a startup because there are no systems in place or set avenues for acquiring revenue. These financial constraints, and often the additional burden of finding investors, can be a strain for the dreamers behind the startup because these visionaries often don’t have the experience to handle the practical finance. That’s why it is important for startups to get chief financial officers (CFOs) on board very early in the process.
Why Startups put off hiring a CFO
Startups often don’t have a cash flow coming in or have only a small incoming cash flow. For this reason, hiring additional staff can be one of the last things on their to-do lists. A startup might only be one or two people working off of a dream — they have passion and see a need for what they offer. Passion and dreams go a long way to fuel a startup, but unfortunately, as many startups find when they hit their first rough patch, passion and dreams aren’t enough.
Although any additional expense to a startup can seem overwhelming, sometimes it is a necessary evil to succeed. This is where the fractional CFO comes in. Onboarding a fractional CFO is often the best way for a startup to get the help they need without paying out the ear, as Fractional CFOs offer insight and experience without the costs and risks associated with a full-time hire.
What is a Fractional CFO?
A CFO is usually one of the most important leaders in a corporation. They take the lead on financial issues and make sure that the company has the correct plans in place to thrive financially. Because of their importance to a company, they often make a hefty salary and are usually tied in for the long term, with a complex compensation package tied to the long and short term growth. It’s usually expensive to hire them, takes a lot of time and the risks associated with a bad hire are very material.
A Fractional CFO manages all the same duties as a traditional or full-time CFO but does so for transitional periods or is hired like an outside contractor for companies that are too small to require a traditional full-time CFO or who cannot yet afford one.
What a Fractional CFO Can do for a Startup?
Startups come with a lot of experience, but most of it typically has to do with the product or service being offered. A new tech company likely knows the ins and outs of the tech field they are looking to enter and a company promoting green energy probably knows all about both lowering carbon footprints and laws around clean energy. However, neither of these companies might have any real experience with running a business, global tax optimization, scaling up international people, payroll, or taking the processing data beyond to forecast the future growth.
Practical experience with business and finance count for a lot. And Fractional CFOs can offer advice and guidance on many industries pitfalls. However, fractional CFOs can offer much more than just financial advice to a startup. They can actually give a startup a better chance of getting off the ground and surviving, as well as help them build a workable plan for the future.
One of the biggest reasons to bring a Fractional CFO on as early as possible is because they can help a startup build the financial infrastructure for the business. What does that mean? A good fractional CFO can help because they can find a good scalability model for the business, help to manage startup cash, understand data driven business strategies, and have a good sense for legalities. Where one incorporates has a significant impact with future tax optimization and regulators aspects.
Because they have practical experience in the field, Fractional CFOs understand how a business can change over time and can help build a system that will grow with the company rather than hold them back.
This means building systems that will work in a huge growth spurts and financial downturns rather than something that works ‘for now.’ Growth can happen fast and while that can be good, if the infrastructure in place can’t handle it, then growth can become a problem or stumbling point. CFO’s help enable the startup to grow as quickly as possible. Rough financial periods happen and systems to survive a few of these will make all the difference in a business’s survival.
Manage startup cash
Scalability plans fall within the traditional role of a CFO, but as the world changes, so has the role itself. In today’s world, a CFO handles a lot more than just the financial plan for a startup. One of those other duties that startups might not think of is that a CFO might actually save them money.
It’s easy to blow through the initial startup capital. There are so many things that need to be done and no (or little) money coming in. Many startups find themselves unable to make their startup capital last without someone who understands how it all works. While a CFO might require a salary, they also have a good sense of what things will cost and are able to make intelligent predictions on the best ways to stretch money. In a world of crazy valuations, Founders and investors often have a big disconnect on their idea of value and this is where a Fractional CFO can help share how the others view their business from an objective perspective.
And if the money can’t be stretched, CFOs have experience in dealing with attracting and speaking with investors.
Legal Jurisdictions, Global Tax and Risk
Laws can be complicated, and a good CFO understands the ins and outs of what a startup needs to do to stay in compliance. They can help with choosing the proper entity jurisdictions, contracts and ensure that taxes are all in line. While at some point a business may need to hire a lawyer for legal concerns at the outset a Fractional CFO is a great place to start as the right one has a lot of experience with lawyers.
While startups can function without a CFO, doing so adds a lot of risk. A Fractional CFO is a low commitment way to make sure a startup is covered financially and set up to grow so that those with the vision for the startup can continue to use passion to fuel their dreams, rather than getting stuck in the sticky logistics.
So if you’re looking for a Fractional CFO or even just an independent second opinion on your business, then look no further than Panterra Finance. Contact us today to learn more about our services. You can learn more about our company by visiting our website or by directly scheduling a free consultation call with one of our experts.