When should a startup consider an outsourced Finance Director or CFO?
Hiring an outsourced Finance Director or CFO is an important decision and milestone in the journey of a startup company.
It’s vital to understand the difference between the two roles so you can bring in the most appropriate resources for your needs. This blog post will cover:
- What does a Finance Director do?
- What does a CFO do?
- When to hire an outsourced FD
- When to hire an outsourced CFO
- How to make the decision
- Benefits and considerations of an outsourced resource
What does a Finance Director do?
In a large business, there may be a CFO, Finance Director and Financial Controller, but in a startup, the FD and FC may be combined into one role. The Finance Director will oversee all the accounting activities and ensure that the startup financial records are fully compliant to current rules and regulations.
This is likely to include:
- Setting up and maintaining internal controls
- Monitoring company bank accounts
- Developing and maintaining finance procedures and policies
- Planning and preparing annual budgets
- Facilitating compliance audits
- Supporting the CFO and executive team with reporting and analysis
What does a CFO?
The CFO (Chief Finance Officer) is responsible for the strategic financial planning, as well as the business financial operations. The Finance Director or Financial Controller will report to the CFO if this role is split. In a startup initially, the roles may be combined.
The CFO is responsible for:
- Managing financial risk
- Financial modelling, planning and reporting
- Providing financial advice to the CEO and Board
When to hire an outsourced FD?
Startup founders tend to manage the finances of the business at the beginning. However, once the company starts to grow it makes sense to bring in some additional resource to ensure that the money is managed as effectively as possible. As a rule-of-thumb, by the time you have annual revenue of around £500,000, your finances are likely to be quite complicated and an outsourced FD could be a good investment. At this stage, you may only need a part-time FD, also known as Fractional FD to keep on top of everything. Once you are at the £8-10m annual revenue stage, you are likely to need a full-time Finance Director, so an in-house option could make more sense at that point.
When to hire an outsourced CFO?
As your startup scales, you will probably find that you need more financial strategic direction. At this point, you can consider hiring an outsourced CFO. It is possible to hire a part-time CFO who can help move your business forward without the significant cost of a full-time in-house resource.
How to make the decision
There’s no single right answer as to when you should hire your FD or CFO, but you can ask yourself some of the questions below to help you analyse your requirements.
How complex are your operations?
If your accounting and operational processes are complicated, you are more likely to need detailed, accurate reporting and planning.
How much expertise do the founders have already?
If you are well-equipped with finance and business knowledge, you may be able to delay hiring but these activities may not be the best use of your time. Consider what else you could be doing if you hire in an outsourced CFO or FD.
How quickly is your startup growing?
If the pace of change is rapid, your finance operations are likely to need investment to keep up.
Is your startup looking for investment?
If you are looking for investors, your financial accounting and reporting needs to be error free.
Benefits and considerations of hiring an outsourced resource
Initially your startup might only new a few hours a month of FD or CFO expertise, so using a company that provides outsourced finance services makes much more sense. As you grow, this can be increased incrementally to suit your needs which means you aren’t paying for resources that aren’t fully utilised. Another benefit of using an outsourced provider is that you will be able to buy in resources faster than if you recruit in-house. In addition, it can be useful to have someone else involved at a senior level who can bring new ideas from outside the business.
On the other hand, if you are growing very rapidly, it might make more sense to invest time earlier to find the right in-house resource who can getting fully immersed in the role and be part of your journey.
At On The Go Accountants, we understand the needs of start up businesses and can provide advice and support to help you grow and scale. Get in touch with
David Masih, our client relationship partner. David can explain how we can support you with full-time or part-time outsourced CFO resource during a no-obligation chat today. Call 03330 067 123 or email
info@onthegoaccountants.co.uk.
