When Is It Time for a Startup to Hire a CFO?

If you’re a mid- to large-sized company, you most likely have an accounting manager or controller already closing the books and keeping timely and accurate financial records. But as the business grows, you may require strategic financial planning, especially if you intend to make significant growth investments or seek acquisition opportunities. Enter the chief financial officer (CFO).

While controllers and accounting managers handle everyday accounting, CFOs tackle higher-level responsibilities. CFOs tend to have more knowledge about the financial world, including market activity, business management and investing. Rather than completing short-term accounting tasks, they advise leadership on long-term business and growth strategies, monitor cash flow, anticipate risk and lead the business’s financial team.

But how do you know when your business is ready to hire a CFO? Here’s how to make the hiring decision at the right time so you can increase working capital, navigate economic uncertainty and cultivate growth.

When should you hire a CFO?

Every business will have a different timeline for hiring a CFO. If your business is experiencing significant growth or plans to make growth investments, a CFO can ensure you make sound business decisions and address financial challenges effectively. Here are some questions to help you gauge your need for a CFO:

• Do your growth plans require more financial expertise than your business currently has?
• Could you be better equipped to handle financial uncertainties, such as inflation or supply chain disruptions?
• Does your business need to improve efficiency and cash flow?
• Could your business benefit from more financial analysis and data-driven decision-making?

If you answered yes to these questions, you more than likely could use the expertise of a CFO. However, it ultimately comes down to what your business’s objectives are. If your business is restricting its expenditures and aiming for profitability, a controller or accounting manager is probably sufficient. On the other hand, if you just landed a big customer or have enough working capital to make growth investments, you will probably get a return on investment from hiring a CFO. Or, if hiring a CFO seems too big a commitment, another option is to outsource the CFO role. This gives you the option to work with someone who has experience specific to your industry or business structure — for example, a CFO with financial expertise in manufacturing or seasonal businesses — without the overhead of a full-time employee.

The CFO role is vital in today’s market conditions

According to a Deloitte survey from late 2022, a combination of high inflation, rising interest rates and recession fears are top of mind for CFOs. These economic challenges are prompting more than half of CFOs to prioritize cash flow management and financial performance. For many businesses, this points to a greater focus on cash flow forecasting and planning, as well as reducing liquidity risks — key functions of a CFO.

Without effective cash flow management, your business risks becoming insolvent, unable to make debt payments or meet everyday expenses such as payroll. In fact, cash flow issues account for 82% of business failures in the United States. A CFO will monitor and forecast all the cash going in and out of your business, so you can mitigate potential cash shortages proactively. This is especially important when business funding becomes more expensive and less accessible. 

Even if your business is financially stable and has sufficient working capital, a CFO is valuable for your growth strategy. CFOs understand current market trends and can optimize return on investment (ROI) with smart, well-timed investments. For example, rather than making growth investments in traditional business functions such as marketing, forward-looking CFOs may prioritize investments in digital transformation and environmental, social and governance (ESG) initiatives.

CFO strategies to increase working capital

When borrowing funds becomes too costly or inaccessible, a CFO can help your business access the working capital needed to operate and grow through alternative means. Some working capital solutions that CFOs may recommend include:

• Invoicing and payment strategies. Simple strategies, such as digitizing invoicing and payment processes, minimizing invoice errors and sending invoices promptly, can all promote faster payments from buyers, increasing cash flow. By forecasting cash flow, CFOs can also determine the maximum payment window your business can afford and negotiate terms accordingly.
• Asset-based lending programs. This type of financing is secured by your assets, which could include inventory, accounts receivable or equipment. Asset-based lending often comes with more flexible interest rates and terms than traditional financing.
• Supplier discounts. If your business is minority-owned, woman-owned or classified as a sustainable business, you may be eligible for discounts and other financial benefits from buyers. Some Fortune 500 companies, such as Walmart, offer financial incentives to certified businesses.
• Business operation restructuring. Rather than acquiring more debt, CFOs may look for internal ways to improve cash flow. For example, negotiating lower vendor pricing, contracting staff, leasing instead of purchasing equipment or introducing digitalization can all minimize costs and streamline operations.
• Early payment programs. By offering buyers a small discount in exchange for early payment, you can increase cash flow at a much lower cost than traditional financing. Many buyers already implement early payment programs such as C2FO’s, making early payments an easy, accessible and debt-free working capital solution for you to consider..

The takeaway

CFOs take your business’s accounting department to the next level, providing market expertise that informs smart growth investments and risk mitigation. If your business is growing quickly or wants to optimize its excess working capital, working with a CFO — whether you hire a full-time employee or contractor — can give you the financial expertise needed to maximize ROI and weather economic downturns successfully.