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  • Writer's pictureKathy Kinder

Why Early-stage Companies Need a Fractional Chief Financial Officer (CFO)

10 Ways to Benefit from CFO Knowledge and Experience

Many founders of early-stage companies think they can't afford a fractional CFO (or good financial partner). With this article I will show that the opposite is true. A good fractional CFO will help you save money, time, and help you prepare for success with your investors.

For those of you who don’t know me, I have many years of experience successfully working in tech companies as a CFO with broad experience in finance and administration. After my second exit from a private equity (PE) owned company, I decided to change my focus and try something different. I chose to use my knowledge and experience to help founders with early-stage companies. I help my clients understand how to think of a fractional CFO as an investment instead of an expense.

In my experience helping early stage companies since 2018 I see founders making repeated “errors” that require precious time and resources and are easily avoidable with some very affordable assistance. For example:

  1. Maintaining records only on spreadsheets including invoicing are prone to human error. It’s important to move to an accounting system early that has some functionality to help keep records in shape.

  2. Not keeping personal transactions separate from company transactions could impact founder’s tax liability.

  3. Not maintaining cap tables creates a scramble to get data when needed for investor requests.

Do any of these errors look familiar? If they do, you need basic bookkeeping help.

Basic bookkeeping is important to:

1. Take the record keeping burden off the founder.

2. Provide proper insight into cash balances, liabilities, and receivables.

3. Avoid unfavorable surprises.

But a strategic fractional CFO will also benefit you. Here are 10 ways I’ve helped founders be more successful:

1. Making Financial Forecasts

2. Analyzing Budget vs. Actuals

3. Determining Unit Economics

4. Preparing Board Presentations

5. Evaluating Sales Resources and Productivity

6. Strategic Planning

7. Reviewing Customer Contracts and other legal documents

8. Providing HR Oversight

9. Risk and Treasury Management

10. Raising Capital

Many of the items above will fall to the founder/CEO if he/she does not have a good financial partner. The founder should be spending his/her time focused on product – market fit, vision, and execution – and let a good financial partner take the lead on certain financial aspects of the business. Many founders try to save money by not engaging knowledgeable help but quite often this ends up causing more trouble with negative personal tax impacts, poor cash management resulting in too high of cash burn, and not having financial and other records in good shape for sharing with investors when needed. Founders don’t want to lose any traction they have with an investor because they can’t promptly provide them with information. When founders must take time to get their records in order, the investor may become impatient and move on to other options. The founder may lose the opportunity when the investor thinks too much time has passed and moves on, often with the impression the business is not well run.

The right CFO partner can help formulate and validate strategies for growth and viability. More than a controller, a CFO provides a financially oriented voice to the owner, CEO, or executive director as a trusted right hand. The CFO understands “business drivers,” risks, and how to create value. The CFO, by definition, works hand-in-hand with the CEO to carefully navigate the opportunities and risks of taking a business to the next level. In doing so, the CFO should be seen as an investment instead of an expense.

So, how do you find the right fractional CFO for your business?

Look for a firm that focuses on providing on-demand, fractional CFOs to early-stage companies like yours. You’ll of course want a CFO with the right educational degree and successful business experience; someone who is recognized by their peers and has experience in your industry. You want to find a company that is responsive to your requests, has happy clients and can easily provide references and referrals. If the firm has multiple CFOs providing these on-demand services, the CFO you partner with can bring the value of all that experience to you.

As a side note most fractional CFOs work best if they’re embedded with the leadership team or have a close relationship with the CEO. This will allow them to deliver on the role as trusted advisor. The CFO should have sufficient knowledge of the business to add the most value and can gain this knowledge quickly by working as part of the internal team.

In summary smart early-stage companies view the fractional CFO as an investment instead of an expense. Or as I like to describe it… as in the older, yet well-received Fram Oil Filter commercials… pay a little now or pay a lot later! (Lost investment, tax expense, too much cash burn – there are so many things that can go wrong without the right expertise.)

LiftBridge CXO is here to help. Our passion is lifting early stage and growth technology companies to the next level of growth by offering interim, part-time, and project-based chief financial officer (CFO) services to sail past common barriers experienced by growing tech companies. Contact us to learn more.

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