Hiring a CFO is one of the most critical decisions a CEO will ever make for the future of their company. The role of finance chief has evolved with start-up culture, becoming more hands-on across the entirety of the business, taking a fundamental role in shaping the short- and long-term strategies for the future, and effectively acting as the CEO’s right hand. To be in the best position to do this effectively, the CFO should be in place ahead of any forecasted periods of rapid or intensive growth. So if a company has recently secured funding, it’s time to make that crucial hire.
Increased complexity, or the prospect of it, is the key indicator that it’s time to bring a CFO on board. Although there is no rigid revenue figure that should automatically trigger this decision, most start-ups should consider filling this role at around the $10-20 million annual revenue mark. As businesses scale and bring more people in, they naturally become more complex and inefficiencies and flawed methods of working may begin to have a significant impact. The CFO’s experience should allow them to analyse all elements of the business and make plans for how to handle and finance the expansion.
Jane Popick, CEO of email and social media marketing firm VerticalResponse, wrote in the Huffington Post about her decision to hire a CFO after several years of employing accountants to close the books. “Two years, 60 employees and $8.6 million in revenue later, I started to have an uneasy feeling,” she wrote. “We were at the point where we needed someone more experienced to not only run our accounting functions, but really look at our business model, the key drivers in our business and how we were managing those drivers. Plus, this responsibility was just getting too big for me, especially considering the fiduciary duty I had to my shareholders.”
Within months of being hired, Popick says, her CFO had made a point of learning about the nuts and bolts of VerticalResponse, introduced new policies helpful to the growing company, and helped her with managing investors. Her advice? If you’re growing quickly, hire a CFO.
The CEO can only steer the ship solo for so long. When large-scale investment becomes a reality, the job of growing the business’ capacity while implementing future financial plans becomes more than one person can do alone – at least, to the standard investors expect. This is when recruiting a CFO becomes a must. They’re perfectly positioned to guide the company through the difficult times ahead, both in terms of managing the impending growth and negotiating any legal or tax issues this may involve, and introducing strategies for increasing revenue in line with the interests of the board.
Earlier this month, Credit Karma, a consumer finance start-up, raised $175 million during a Series D round of funding, acquiring a $3 billion valuation in the process. Shortly before this major financial injection, which tripled the company’s most recent valuation just nine months previously, CEO Ken Lin brought in Joseph Kauffman, former CFO of TAL Education Group.
At the time of Kauffman’s appointment, Credit Karma was already in its fourth year of growth, with membership doubling year-on-year and 250 people in its employ. Some would suggest that the hire should have been made at a much earlier date, closer to the 50-employees mark or during the September round of investment, but every business has different needs at various stages. However, the appointment has sparked rumours that the company is preparing to float on the stock market. If this is true, Ken Lin has made his hire ahead of a critical point in his business’ history; now is the time to ensure that the financial strategy is fire proof and that the company is prepared for the next crucial stage.
It’s important to match the experience of the CFO to the size of the company; hiring someone with decades of experience at FTSE 100 companies simply isn’t what a start-up needs. Mid-level financial professionals, such as controllers or directors of finance, may be the best people to grow and flourish with your company. Provided they have excellent financial knowledge, a talent for strategy and a head for business, someone fresh to the title of CFO could well provide the kind of agile thinking that’s invaluable to a start-up today
Bringing in a newly-minted CFO can also help to save on the hefty salary investment most companies anticipate. Many start-ups attempt to avoid this cost by using accountants, or hiring CFOs part-time. But the benefits of having the right person in, full-time, from an early stage will start to show very quickly. Rather than coming in further down the line and spending time untangling complex processes and replacing them with efficient, cost-effective ones, they can get to grips with the business while it’s easier to change direction, implementing strategic alterations with long-term benefits.
The bigger a company gets, the harder it becomes to make the fundamental changes often required of a CFO. Once it becomes apparent that your business is set for success, hire a CFO to help kick-start your plan into action.
Post produced in partnership with John Watkins, Managing Partner at Altima.