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We have lift-off. Your exciting new business is off the ground, your presence at the frontiers of next generation tech is noted, and you’re now soaring into the rapid scaling up phase. It’s exhilarating. And then, it gets incredibly tough.
Even though it might just be a scant couple of years since you started your company, so much about the way we do business has already changed, and keeps on changing at lightning speed. There’s escalating demand for your founder team to be sharper and faster than ever before.
The rigours of growth place extreme pressure on everything you have built so far — from your teams to your infrastructure and your finances.
One of the critical challenges the founder team faces is when to boost their financial management by bringing a CFO on board
It’s no easy joyride. You’re like Top Gun, triumphantly in the air in one moment, and then soon in a battle for survival, and for deeply-hoped-for victory. There’s a knife-edge to the decisions that you make to meet your scaling up needs because the wrong choice at the wrong time can bring your company plummeting down.
One of the critical challenges the founder team faces is when to boost their financial management by bringing a Chief Financial Officer (CFO) on board. Supporting rapid growth does demand access to higher levels of financial skills and financial management infrastructure, but a full-time CFO comes at a burdensome cost for what is still a small company.
How do you negotiate this?
The CFO is your go-to-finance person holding the reins of cashflow, formulating financial strategy, mitigating your risks in a fast-paced changing business environment and making sure you run on world-class systems and empowering you to raise that next round of growth finance.
You know this expertise has to be available to you at any moment – but if you can’t rely on hitting the sweet spot, the question is: should you make the move sooner rather than later?
Let’s take a look first at the latter — the reactive signposts on the scaling up journey that arise out of being immersed in stressful financial scenarios that you want to eliminate from your life, such as:
- Cash is not flowing — on paper your business is showing a profit and you are paying taxes but there is never enough cash available.
- Growth capital seems out of reach – potential investors are asking for your financials, but you have no clue how to answer them.
- There’s a wolf at your door – the taxman is asking questions about tax types you do not properly understand.
These are such painful pain points, so distracting from your purpose as a founder, that you want a charged-up CFO to step in and make it all go away, so you can be freed up to do what you do best.
Would anticipating this have been better? Let’s rewind to notice the proactive signposts that mark the aspirations you have for your business during the scaling up journey, such as:
- Optimising profit – turnover is growing fast, which is great, but what triggers you is becoming more profitable, and you don’t exactly know how.
- Improving decision-making – you’re moving forward fast and you want all the real-time, instant key metrics to answer your financial questions. You want live financial information that empowers you to make optimal decisions, faster.
- Attracting investors – You’ve got clear plans for rapid growth, which needs funding soon.
You need to value, prepare and package your company as a priority, and this is not within your skill-set, or that of your current bookkeeper or financial advisor.
It turns out to be a wonderful world, if your triggers are both proactive and affordable, and you get your CFO on your team without creating stress. But in reality it doesn’t always work out like this, and the savvy entrepreneur looks to alternatives.
The goal, generally between years two to 10 are about accessing the higher levels of skills that escalate growth in affordable way. A full-time CFO may not solve your problem or boost your growth during this unique phase. Founders of tech startups that are scaling up may well find the sweet spot in a part-time CFO.
Read more: What are the drivers of valuation for your tech startup?
Read more: 10 fintech apps to help you better manage your startup’s finances
Read more: Seven steps to hack your scale-up company’s funding, investment readiness
Louw Barnardt is the founder and managing director of Outsourced CFO, a financial consultancy that specialises in CFO and cloud accounting services for tech and innovation companies.