The pandemic has changed the way business owners look at their numbers. It is helping reinvent and redefine the role of the CFO with the Board as fast-growing companies race to stay ahead of the competition in this “new normal”.

Before the pandemic hit the global economy, the CFO’s role was structured. The focus was mainly on presenting financial results, providing analysis, and explaining the divergences from expectations or the past results.

In the post-COVID world, the fundamental drivers of business have drastically changed, with a shift in focus from a “historic” accountant’s approach to a more “futuristic” CFO’s approach to look at how the business will be reconfigured for the road ahead.

There is a clear need for looking beyond the numbers, and seeing things from a strategic perspective. For many start-ups it is about sustenance in these tough times that calls for sophistication and knowledge that many start-ups can’t afford.

Enter the world of Virtual CFOs, where start-up owners can tap into an experienced pool of financial professionals for a fraction of the cost.  These CFOs develop insight-driven strategies serving as valuable insights to the start-up in these tough times.

What does a Virtual CFO do?

In today’s world, a virtual CFO is expected to wear many hats. Long gone are the days when a CFO was just expected to report on financial results. A virtual CFO’s role would typically involve:

  • Streamlining accounting polices,
  • Defining processes for accounting, financial management, and reporting,
  • Ensuring timely and accurate financial reporting,
  • Providing dashboards that bring KPIs,
  • Budgeting, forecasting, and planning, and
  • Managing taxes, compliance and other legal stuff

Apart from the traditional roles highlighted above, today’s virtual CFOs also manage:

  • Fundraising: For many start-ups ongoing fundraising is critical for survival. This involves coordinating with investors, helping with due-diligence and going through tons of paperwork to complete the fundraising process.
  • Technology Implementation: Technology is the backbone in any successful virtual CFO engagement. The term “virtual” would really be possible only if the right technology interventions are made in the financing and accounting processes.
  • Board Participation: Virtual CFOs also help and coach the CEO and are quite often required to attend board meetings to drive strategy and provide insights.
  • M&A Support: M&A support often covers due diligence, valuations, and all the legal paperwork that comes with the acquisition.

How does the transition happen?

Onboarding a CFO often takes three to four months, and involves top management’s time in setting the expectations right. Weekly reviews during this onboarding time is not uncommon. The top management’s involvement and commitment is usually a critical element of success in the virtual CFO model.

KayOne Consulting, for instance follows a four-step model to onboard clients:

  • Step 1 – Defining Goals: The first step in onboarding a virtual CFO is defining the key pain points. As start-ups evolve from the ground up, there are several loose-ends that need to be straightened. Defining these key pain points and setting the expectations of the top management is highly critical in setting the ball rolling in the right direction.
  • Step 2 – Reporting Structure: The top management and other middle-management often require several reports from the accounting and financing team. It could be numbers relating to the burn, cash balance, accounts receivable or compliance related reports.  Some CEOs digest visual data better and will benefit from more charts and graphs. Middle-management level people usually are more numbers-data oriented and will need detailed reports. Defining these reporting requirements, including the format, periodicity and responsibility is key to achieving long-term success to fuel your business growth.
  • Technology: Technology is an essential part of sustaining and scaling your start-up. Software must be selected with a fine balance between cost, features, performance, and scalability.
  • Process re-engineering: Laying down processes and procedures, including re-engineering the ones that have already been followed is key to sustaining high-growth. One advantage of getting the services of a virtual CFO is that you can benefit from their knowledge of processes they’ve built for other similar businesses.

At this stage, you should define a 90-day roadmap along with your Virtual CFO with clear expectations of deliverables and milestones. This roadmap is a crucial first piece in the engagement with the service provider.

How do I choose the right virtual CFO for my start-up?

While hiring a virtual CFO that will work best for your start-up, consider how they can be a multifaceted partner for your company’s growth plans: 

  • Team Size: Look at the firm’s team size and team composition. See if they have the team members that could provide the multifaceted approach to managing your start-up’s finances.
  • Client Size: Ask the firm if they’ve served start-ups of similar size. Being a CFO for a $100M business is way different from the challenges thrown at a CFO of a $3M business.
  • Industry Expertise: Ask the firm if they’ve worked with companies in your industry. If you are a SaaS startup, understanding SaaS metrics such as churn, MRR and ARR is key to business success. Also ask what financial metrics they have used in similar businesses to provide insights to the management.
  • Accounting Expertise: Accounting could get quite complicated depending on the industry in which you are operating in. For instance, in the Telecom industry, revenue recognition requires deep understanding of the accounting intricacies and industry practices. Ask the CFO about their accounting expertise specific to your business and the environment in which you are operating.
  • Managing External Stakeholders: Managing external stakeholders like VCs, lenders, statutory authorities is one of the key roles of the CFO. Ask the firm if they have managed external stakeholders before. See if you can talk to some of their existing clients to check how well these aspects have been managed.

Traditional bookkeepers are useful in the earlier stages of your start-up when you are ideating and building your initial team. However, as you grow towards achieving a product-market fit, to the point where you need to sustain a high-growth, it’s time to hire a virtual CFO.

The financial rigor and expertise a virtual CFO brings may often be one of the key stepping stones to ultimate start-up growth.