This is why investors love CFOs
14th February 2018
At first glance, it seems like a complete no-brainer. Investor X is deciding where to place their giant stack of cash (we’re going full Dragons Den here, it makes the examples more interesting). Business Y has a Chief Financial Officer pulling the strings, modelling outcomes, setting financial baselines and preparing for the future. Business Z has a plucky entrepreneur that manages it all on their own – maybe they’ve got a CMO, a CTO, even a CRO; but no CFO. If both businesses seem to have equal potential on paper, which one leaves the den happy… and which one gets roasted by Deborah Meaden?
Accounting software is getting smarter every day, making it easier and easier to balance the books yourself. Business Z have wisely opted to save money and invested precious hours into keeping everything ticking over. In those early days, every penny counts and having the dedication to put in that extra time (especially if you’re new to finance) is admirable.
It’s not the early days anymore, however. Evan Davis has put you in the lift and like an Eminem ‘8-mile’ montage, your knees are weak and palms are sweaty. It dawns on you that you’re not just extending your runway anymore. You’re asking for a sizeable chunk of somebody else’s hard-earned cash. Cash that you need to take your business to the next level. You’d best be able to provide comprehensive financials, else all you’ll be leaving with is a cheeky flash of Peter Jones’ socks…
So, what exactly is it about CFOs that investors love so much?
1) They set clear baselines
Many companies set their baseline according the last year’s financial reports. Seems pretty simple; realise where we were and move forward. An increase in earnings of £1m might seem successful… if you didn’t know that the market grew at the same rate. Much in the same way that a 5% drop in earnings may seem a failure, unless you knew that earnings would have fallen by 20% without your efforts.
Performance can be affected by marketing & advertising costs, store openings, fluctuations in the cost of materials or labour… Having somebody dedicated to setting and measuring against a clear baseline is a ballast when it comes to getting that crucial investment and keeping them happy.
2) They mitigate risk
Two words that will leave Duncan Bannatyne purring like a pussycat. Risk mitigation is of mammoth importance to startups. Having somebody on your team that can evaluate and assess key business decisions, giving you the ‘what if?’ to your grand plans.
Are you planning to open at a new location in Q2, but your marketing team are preparing to blow the budget on TV ads that same quarter? A good CFO draws connections between your teams and gives you the heads up on potential challenges.
Their technical expertise and industry nous will keep you ahead of any regulatory developments on the horizon too. (Brexit, anyone?)
3) They identify value
Your startup is a hive of creativity. You’ve got a marketing team bursting at the seams with great campaigns, operations have spotted a great new location, there’s another award ceremony around the corner… but what’s impacting the bottom line?
Any marketer worth their salt is measuring their impact and trying to identify what works and what doesn’t – but how realistic is that for the rest of your staff? A CFO has analysed, forecasted and modelled every situation. They’ve drawn the dots across your teams and advised you on the best way to move forward. Investor X really likes knowing that their money is being spent in the best possible places.
4) They’re leaders
For many investors, CFO is second only to the CEO in the structure of a business. A good CFO marries together two important qualities that position them as natural business leaders: a strategic mind and the ability to communicate.
CFOs forecast, model and analyse every stage of a startup’s progression. Regular analysis of KPIs and planning for growth makes them key strategists. Their ability to steer your business (and your team) in the right direction is a leadership quality.
When it comes to presenting financials models and keeping investors updated on your progress, a CFO takes the lead. They need to be able to clearly communicate every aspect of your plans and predictions to a finance-savvy investor and your non-finance staff alike. The ability to explain their decision-making rationale has a huge impact on staff and investor buy-in.
"Lots of early-stage capital businesses require good system infrastructure in order to compete efficiently and scale with the front-end of the business as it grows. Nobody wants operational systems and processes to be the bottleneck to growth. Equally, nobody needs an all singing all dancing ERP system for a company that doesn’t sell or do much. This is a role generally taken on by the CFO; the CFO role is seen more and more as a COO role in early stage businesses. CFOs tend to take an approach of looking for the optimal balance of only investing resources to the necessary level at any given time, but can be comfortably scaled as the business grows"
David Carolan, CFO Doctify.
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