How a Consultant CFO can ensure the success of a thriving start up

Alex McDermott: November 20 2018

"More than half of all new businesses fail within their first year."

We've all heard this saying and it is true to some extent. According to smallbiztrends.com 96% of all businesses started in 2011 failed that year.

Yikes!

Why is this the case? There are many factors involved, but the most frequent issues are related to finance.

So many of these businesses had a solid foundation. An ambitious CEO with vision. A revolutionary product that would take the market by storm.

And yet they ran out of cash within 3 months.

Or they didn't meet their financing obligations.

Or they simply had no idea how well they were performing because they had no management reporting available.

There is so much to think about when starting a new business. Most startups think that they can get the business up and running, and deal with the financial aspects later.

They think that a CFO is a luxury that isn't worth the price tag. At least not at first.

Sometimes this is true. However, in most cases, a capable CFO will easily outweigh their cost with an increase in profitability immediately after hire.

How?

Group Structure

 

There are endless options available for group structures, and given that no business is the same, it can be overwhelming for someone without the necessary expertise to navigate this field.

Fortunately, your CFO will have experience in the industry in which you operate and will have set up multiple group structures in the past.

One of the key advantages of setting up an appropriate group structure is tax savings. A tax efficient structure can significantly improve your net profit margin. Why settle for 5% net profit when you can have 50%? This increase in profit will easily fund your Consultant CFO.

Systems and Processes

This is one of the first things to fall under the radar in most new businesses. It is imperative to establish systems and processes for revenue collection, vendor payments, and management reporting.

While the CEO is busy dreaming up the next expansion. The CFO will implement the foundation that will make it happen.

No business can survive without an accurate picture of its performance. This is the starting point for any improvement exercise.

A CFO will help identify the cost base, discover how to improve this, and then provide reports demonstrating how these cost savings have been achieved.

Cash Flow

Cash is king. And without it, your business will be in liquidation.

The importance of accurate budgets and cash flow forecasts cannot be understated.

Without an accurate picture of future expenditure, and more importantly, the timing of that expenditure, many businesses completely lose track of where their money is going. And before you know it, vendors aren't paid and you can't afford salaries for the month.

The first thing any competent CFO will do is review the cash flow needs of the company, and ensure those needs will be met.

Do I need a full-time CFO? If so, how long for?

The majority of startups absolutely do NOT need a permanent, full-time CFO.

A credible CFO will tell you this. In fact, they should be able to implement all of the above in just a few weeks.

Consulting CFO's start at around $700 per day. The benefits of this upfront cost just a few months can significantly impact the future of the business.

From there, you can go with whatever the business needs. Whether it's simply a bookkeeper to maintain the established systems and processes or retaining the CFO to provide ad-hoc consultancy, you will absolutely find you are in a better position to ensure the success of your business.

https://www.toptal.com/finance/interim-cfos

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