4 Things a Part-Time CFO Can Do for a Business Startup

4 Things a Part-Time CFO Can Do for a Business Startup

by Gregory R. Smith

Most startups donโ€™t need a full-time chief financial officer. However, most business founders are not accountants, and CFO-level expertise is essential to get any new venture off to a sound start and onto a path toward future growth. A part-time CFO can help your fledgling business in four essential waysโ€“stewardship, operations, strategy, and creating long-term business value.

Exactly what that means depends on your type of business, but positioning your company to grow right from the beginning allows you to sidestep common mistakes, take advantage of opportunities as they arise, and even set you on the right path to position the business for future acquisition/sale. A part-time CFO can explain what is needed practically and strategically to make your startup stronger.

1. Putting Basic Financial Building Blocks in Place 

Every startup should have:

  • An accounting system appropriate for an early-stage enterpriseโ€“not necessarily the kind of broadscale system you will need in the future.
  • The right internal controls. Itโ€™s never too early for risk managementโ€“defining who is responsible for approving payments, writing checks, etc. adds efficiency and protects your business at the same time.
  • Basic financial reporting, tailored to your type of business and the data you need right now. You canโ€™t make effective business decisions without having key information at hand. Do you have a budget? Are you producing monthly financial statements? If youโ€™re earning revenue, how is that recognized within your accounting system?
  • Adoption of accrual accounting. Cash basis may seem easier, but it doesnโ€™t give you a true picture of your financial position. An experienced CFO can explain why this is so important and get you set up properly.

2. Company and Financial Risk Mitigation

Even startups face risks that require proactive protection such as business insurance and health insurance for employees. Beyond that, there are other inherent risks. For example, client or vendor/purchasing contracts can become problematic in the future, for a variety of reasons:

  • Big companies may try to force you to give them โ€œmost favoredโ€ or guaranteed pricing.
  • They may demand exclusivityโ€“across the board or perhaps within your particular industry.
  • Contracts may provide only one-way indemnification, not in your favor.
  • They may include onerous liquidated damage clauses that require compensation far greater than any actual loss.

On the equity side, key person life insurance is vital. This provides protection in case stock needs to be transferred or if an owner or CEO dies and must be replaced. Do you have (or need) non-disclosure agreements? Do you have equity shareholders? If so, do you have buy-sell or other shareholder agreements? While these are legal issues, a CFO can advise on the procedures as there are financial planning implications.

Do you have the right bank partner to support you in this early stage of business development? Have they given you a line of credit? Are they pressuring you to put up personal assets as collateral? A part-time CFO can help strengthen your banking arrangements.

3. Tax Positioning 

Just like individuals, businesses want to minimize their tax burden. A part-time CFO will help ensure you are set up correctly for tax purposes. That includes how your business is organized and ensuring tax deposits are made accurately and on time. An experienced CFO understands and considers trends in taxation to ensure you are not negatively impacted. A common example for startups is the research and development tax credit.

4. Budgeting 

A CFO has the experience to help you create a budget appropriate for your type of business. They can also help you set up and document accounting and monthly closing processes and create a checklist to catch items from slipping through the cracks, even as your company grows or as personnel changes. Equally important for startups, they can help with cash flow forecasting.

The bottom line is that a part-time CFO can help make sure everything is set up properly for your early-stage enterprise. They will provide the necessary tools for your business to function efficiently at the stage it is at now. You wonโ€™t be overburdened with systems you donโ€™t yet need, but you will be set to scale to the next level when the time comes.Full-time to too expensive? A fractional CFO may be your best solution CTA

Gregory R. Smith

Gregory R. Smith

Greg Smith is a director and practice lead of the Accounting and Management Outsourcing (AMO) group at Redpath and Company. He provides oversight and direction to each of the accounting, payroll consulting and Fractional CFO/Controller areas within AMO as well as directly providing Fractional CFO services. Greg began his career in the entrepreneurial services group at EY in audit and has been a Controller and CFO in public and private companies for over 20 years. Over that time, he has gained experience in a wide range of industries including manufacturing, services, software/internet/high tech, med tech, and real estate. Greg joined Redpath and Company in 2021.