When is the time right to hire a CFO?
If you’re like most start-ups, your typical G&A back-end is comprised of a part-time bookkeeper, QuickBooks accounting application, and TriNet to handle payroll & benefits. The business ‘modeling’ is done by the founder or early employee who took a couple finance classes in college. You are able to get by for the timing being, and for now, this is probably the right solution. But as your venture grows, you soon realize that your budding venture needs more attention than your bookkeeper or TriNet are able to provide. But when is the right time to bring in more financial expertise, to address more complex issues that occur naturally as your company grows? When is the right time to manage these different G&A areas in a centralized manner?
In my experience, a start-up will generally need CFO talent around the time they raise a Series A round of financing. And accordingly to MatterMark, based on YTD data through Q3 2015, the median size Series A round was $6.5M, up 63% from $4M from the year before. In addition, the VCs, who are backing the company, will generally ask the company to seek out that talent after the close of the Series A.
But CFOs are expensive and they generally expect equity, in addition to their on target earnings. And as a result, companies will delay that hire until later funding rounds. I think this tends to happen because companies are only thinking of the position a full time employee. And while that logic is fiscally responsible, I would encourage companies to consider hiring earlier, but on a part time basis.
Interim or “fractional” CFOs are a great alternative to full time CFOs because can help implement technology, processes, and procedures in the earlier stages that will scale as the companies grows. As a result, they help companies avoid future financial issues (i.e., employee stock options) because they are involved early enough to influence the outcome.
Finally, interim CFOs bring real expertise and experience to early stage companies. In addition, seasoned CFOs have usually seen enough in his/her career to offer advice and counsel on how to approach problems, as well as anticipate the company's future G&A needs, even before they become obvious.