5 Reasons for a Start-Up to Hire A CFO Hiring a seasoned CFO on-role may be an expensive affair for a start-up initially but an expert hand to track, maintain, and transverse a company financially during trying times is imperative

The modern times have noted an upswing in the number of starts-up flourishing in varied industries. These organisations bring with them creative problem solving, flat hierarchy systems, and open communication channels. However, these start-ups often grapple with the presence of limited funds, how to use it effectively, and statutory compliances that any organisation needs to follow. The inability to utilise their financial resources can lead to disastrous outcomes. According to the findings of a survey by the Institute for Business Value and Oxford Economics, 90% of India's start-ups fail within the first five years. Although the findings state that lack of pioneering innovation is the major reason for the failure; funding and inadequate financial planning was another major issue.

Hiring a seasoned CFO on-role may be an expensive affair for a start-up initially but an expert hand to track, maintain, and transverse a company financially during trying times is imperative. The idea of an outsourced CFO comes handy here to help a business sustain for a longer run. Due to favourable governmental reforms and mushrooming of financial advisory firms, a start-up can now avail CFO services at 1/3 of the cost which otherwise would have been spent on hiring a full-time CFO.

An outsourced CFO comes with years of expertise that makes him a seasoned CFO who enables a start-up to raise capital, manage cashflows, ensuring compliance & reporting that facilitates consistent growth of the company. He looks after the various monetary aspects and resolves the concerns of the numerous stakeholders. CFO's presence in a firm allows the entrepreneur with the much-needed time to focus on areas like marketing, management, and product development.

Here is a list of reasons that make it clear, why start-ups should hire CFOs:

Financial and strategic planning

Based on the objectives of the management, the CFO prepares a business plan. The planning is usually divided into short term, medium-term and long-term plan. The business environment is dynamic, and it keeps transforming every day. In such a scenario, it is of great importance to keep a plan and financial forecast ready. The forecast is usually done for a set period and it entails three key statements- profit and loss, capital expenditures, and cash flows.

Typical plan would include details such as

• Projected income and expenditure

• Funds requirement

• Policy on what investment of surplus funds if any (treasury)

• Capital budgeting

• Pricing of products/services

Trusted, accurate and timely reporting

Accounting is all about recording of transactions. While error-free recording of transactions is important, it is equally important that this data is reported promptly. That enables management to understand the status of the business, compare with the objective of the organisation and take necessary corrective steps. Further, these reports are made in real-time, and the employment of various technological elements has made the process increasingly accurate as well as precise.

Statutory and other compliance

There are various statutory compliances such as Company Law, GST, Income Tax etc that needs to be adhered to. CFO is well-versed in the subject and ensures that the company adheres to all the requirements. There are certain benefits that the government provides through various schemes to promote business. This is one area where the CFO can advise business owners on their financial decisions, consequently allowing them to draw maximum benefits from such policies.

Some examples –

• Benefits given to MSME establishments

• Moratorium given by bankers toward repayment of loans during the COVID 19 situation.

Risk mitigation

Risk mitigation refers to the identification, evaluation, and prioritisation of risks, followed by the economical application of resources to minimise or control the impact caused by the occurrence of any mishap. A CFO studies all the risks an organisation faces, both internal as well as external, and then draws a plan which will not only help curb these risks but will also maximise the realisation of opportunities during such events.

Some examples-

• Prioritize payments during recession

• Help management to prioritize operations during emergencies such as the current COVID 19 situation

• Ensuring all terms in the various agreements executed by the company protect the interest of the company and no legal complications to be faced later

Managing relationships with stakeholders

Managing relationship with stakeholders for the start-up such as board members, Investors, Creditors, Bankers, Customers, etc is a time-consuming task which takes away a lot of bandwidth from the founder. The CFO diligently coordinates with them and sends them regular reports on how their interest is being taken care of by the organisation. He is responsible for maintaining the goodwill of the firm in the eyes of these stakeholders.

Examples –

• Monthly operation reports to Investors

• Statutory filings with the bankers

To conclude, CFO can help the start-up stay afloat with the know-how of sustaining growth and understanding scenarios to raise funds. While affordability is a glaring factor for a start-up to hire a CFO, one cannot completely ignore it. The best option is to outsource the CFO as it will ensure consistent counselling towards growth. A piece of sound financial advice is key to the success of your start-up in this fragmented space.

Entrust Family Office, a boutique investment advisory company, offers CFO services to start-up's, SME's and Mid-size organisations.