As early-stage companies grow, many experience a number of challenges and problems that indicate the need for a CFO, but don’t recognize it. Often they mistakenly think that the hodge-podge matrix of undertrained staff that they’ve set in charge of their finances will be adequate far longer than they really will be able. Here are some signs to watch for that may indicate its time to bring on a CFO or outsourced CFO solution:
Rapid growth in top-line revenue
As revenue grows, operations grow. As operations grow, complexity increases. It comes to a point when the complexity in the financial management of the business requires someone with experience in handling the volume and complexity. A mistake at this level could cost hundreds of thousands of dollars.
There are many reasons why you may need a financial audit. Many of which are external, but sometimes a business wants to audit internally. Either way, audits are not part of the main function of a business and should be overseen by a founder or CEO. That is neither efficient nor productive. Someone with experience performing or managing audits should oversee such detail-oriented activities to lessen the impact and disruption on the company.
If an Initial Public Offering (IPO) could be in the works in the next 3-7 years, it is best to plan far in advance. The strict financial scrutiny through which the company will pass cannot be understated. A seasoned CFO that has been through IPO’s will be invaluable to the business. The CFO will not only prepare sound financial statements required for public offering but will also advise on strategic items that will have million dollar-impacts.
Back on the complexity horse, as your business grows, the CFO can be a critical senior executive to which a number of departments should report. Not only should the CFO be strategic and well-trained in accounting and forecasting, but they should be an excellent senior manager. The point where the CEO and other senior management cannot manage all of their staff appropriately is another great indicator that it may be time to start interviewing candidates. A sharp increase in employees is a black and white indicator. The absolute number depends on the business and industry – but often ranges from 30-100 employees.