Is It Okay To Hire Interim CFO For Startups? Know The When And Why With Respect To Your Business’s Financial Landscape
Yes, it is OKAY to hire interim CFO for startups if you are looking for rapid financial growth for your organization.
You may not need an interim CFO right when you kickstart your journey. However, you will definitely hire one as your business grows and you have clear goals set. A CFO will also play a crucial role in executing your ambitious moves.
A CFO will build a financial model of your business, analyze the transactions, create a budget and make forecasts about the financial landscape. Furthermore, a CFO will assess the risks and devise strategies to mitigate those risks.
Overall, in startups, a CFO will promote a “culture of security” by building and managing an agile infrastructure.
Moreover, they will have a healthy growth orientation and the ability to depict the best financial stories with the numbers whenever they need to communicate with the CEO, investors, and other stakeholders.
| “There’s no question over the last year, this new wave of technologies has had an impact on CFO decision-making. CFOs are really working to get their arms around all of it and we’ve seen this not only through our survey but client interactions. If you think about the CFO’s role in the last five to 10 years, more and more responsibility has been put on their plate. They need to grasp and understand these new technologies because they are ultimately the chief allocator of capital in these organizations. The CFO is in a position where they have to make choices and articulate their rationale to the CEO and the board as to how they arrived at their recommendations.” Sandy Cockrell, Former Global Leader of the CFO Program of Deloitte |
Do you want to know more about the benefits of hiring an interim CFO for your startup and when you need one? Let’s take a deep dive!
THIS Is Why It Is OKAY To Hire Interim CFO For Startups 👍
An interim CFO steps into the shoes of your in-house CFO who is about to leave or has left your company. Further, an interim CFO works for a defined period in an organization.
They will offer services for a span of three months, or six months or so and maintain continuity until the next permanent CFO is hired.
But why do startups prefer interim CFOs over permanent positions? Let’s decode the advantages.
1. Specialized Services Best For Startup Dynamics
An interim CFO will be specialized in managing the typical scenarios and challenges in a startup. Thus, they will guide you through various phases of your company and toward achieving the financial goal of your business.
Moreover, they will be your voice in the fundraising rounds and the following processes.
- Mergers and Acquisitions
- IPO Preparation
- International Expansion
Above all, they will assist rapid upscaling and downscaling of your business, navigating uncertainties and optimizing growth opportunities.
Thus, your startup will remain profitable, seated on solid financial ground, and at the same time, steer toward growth.
2. Cost Efficiency
You get high-caliber leadership in the form of an interim CFO for your startup. The CFO will be the guiding force in your current capital and growth plans.
However, the engagement will be temporary. So, you will not have to worry about the salaries, quities and overhead costs. You will only have to pay the consultation fees.
Thus, hiring an interim CFO is ideal for optimizing the limited resources available to a startup business.
3. Objective Representation Of The Organization’s Financial Scenario
When you hire interim CFO for startups, you expect an objective viewpoint about the financial health of your organization. So, identifying irregularities in the following areas becomes easier with an interim CFO.
- Budgeting
- Cashflow
- Records
- Past client deals and transactions
- Financial control
By resolving the said irregularities, an interim CFO helps a startup achieve its short-term and long-term financial goals. Furthermore, they improve decision-making solely based on data.
However, being data-driven does not mean that they don’t analyze the market or potential risks.
THIS Is When It Is OKAY To Hire Interim CFO For Startups 👍
You will have to bear $440,000 on average as you hire a full-time CFO for startups. However, an interim CFO will only charge you a fraction of this amount, and their role will evolve at the growth stage of your company.
To be more specific, it is common to hire interim CFO for startups when the organizations are in a transition phase. Startups also need an interim CFO if they are going for a new round of fundraising.
If you are not willing to get an interim CFO onboard, you can also outsource the responsibilities to a fractional CFO with close monitoring.
Nevertheless, these are the scenarios when you need to hire interim CFO for startups.
1. When A Startup Prepares For Fundraising
A fundraiser is the most common reason to hire interim CFO for startups. As I have said, the CFO will portray the right financial picture of the organization through numbers. That’s why a CFO is also a good storyteller!
Furthermore, a CFO will participate in the fundraising rounds. They will even advise you on the capitalization structures and the process of fundraising through venture capital and other methods like business credit cards, business loans, crowdfunding, etc.
2. When There Is A Need To Manage Ad-Hoc Projects
You can hire interim CFO for startups to manage ad-hoc projects like financial forecasts. They can function as additional insight into the financial scenario by double-checking the numbers.
Ad-hoc projects are more difficult than they seem, as they demand immediate attention. Also, there needs to be clear planning for the completion of the project within the set timeline.
An interim CFO can build an agile and dynamic infrastructure, create a WBS or work breakdown structure and do resource allocation to ensure timely completion of the ad-hoc projects.
3. When You Need A Strategic Direction
In the USA, a startup business has an average shelf-life of five years. So, it’s clear that many startups struggle to remain profitable in the long run. An interim CFO can be the savior in this scenario.
They can offer you a strategic direction, including the most common “cost-cutting” measure to maintain profitability.
Strategic planning also involves developing timelines and milestones and documenting all the decisions made regarding the same.
Further, some crucial factors in strategic assessments by a CFO are:
- Future risk assessment
- Resource allocation to maximize returns
- Communicating the financial scenario of the company to the Board and other stakeholders
- Modeling, forecasting, and transitioning the business, including mergers and acquisitions
- Bringing innovation and experimentation to ensure a long-term future for the organization
Along with these scenarios, you will also need to hire interim CFO for startups when your existing accounting system is not up to the mark or the financial operations lack clarity.
Moreover, if your in-house CFO leaves suddenly, an interim CFO can easily fit into their shoes.
THESE Are The Drawbacks Of Hiring An Interim CFO For Startups 👎
You can face certain challenges as you hire interim CFO for startups, and the biggest challenge will probably come in the form of integration. Knowledge transfer is another hiccup in the process of getting an interim CFO board and having them fulfill their designated roles.
Integration Challenges When You Hire Interim CFO For Startups
An interim CFO may need some time to get integrated into the culture and system of the startup. Furthermore, they are well aware of the limited span they are going to spend in the company.
Both these factors impact their expertise, and they may not be as effective as expected.
Knowledge Transfer Gap When You Hire Interim CFO For Startups
You cannot deny the fact that an interim CFO is a stop-gap, and their tenure will last until you have found someone permanent for the position.
So, knowledge transfer becomes critical when the interim CFO takes charge and, when they leave, passing all the responsibilities to the new CFO.
During both these processes, the interim CFO and their permanent successors can miss important insights. This can impact executing financial strategies. It’s not always easy to pass the baton to the next unless the direction is the same!
Moreover, you will hire interim CFO for startups for a limited time span. It will not be easy for them to recognize the unique challenges of your business and feel a sense of belonging. Similarly, the in-house financial team members may find their intervention disruptive.
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