Hiring a fractional CFO is a significant milestone and an important strategic move for your startup. Even on an outsourced basis, your CFO is one of the pillars of your company. It’s essential to take your time, do your homework, and find the best fit for your needs.
This article looks at five areas to consider when hiring a fractional CFO, with key considerations and questions to ask in each area.
When you’re ready to hire a fractional CFO, refer to the questions and considerations below to find the best fit for your startup’s growing needs.
1. Startup Experience
What kind of experience do they have with startups?
Venture-backed startups have unique finance and operations needs, and you want to hire a fractional CFO who has “been there, done that” in the startup world. A CFO might have an impressive resume with enterprise or mid-market companies, but if they’ve never helped a company through a successful Series A or acquisition, they’re probably not the best fit for your startup. You need someone on your team who can effectively see around corners and help you with the challenges of managing cash while you scale.
Look at each CFO candidate’s experience and track record specific to startup success. When it comes time to interview candidates, ask questions like:
- How many startups have they helped? How recently?
- What are examples of the biggest challenges they’ve helped startups overcome?
- How large was the largest funding round they’ve ever supported? How did they support it?
- What kind of growth did their previous startup clients achieve?
- What kind of exits did their previous startup clients achieve?
- How do they stay current on the startup ecosystem?
2. Service Expertise
Do they have a proven track record in the services where your startup needs the most support?
Not only are the needs of startups different from the needs of established large businesses, but the needs of startups also vary greatly from one to the next. Examine your company’s specific strategic finance needs, and look at how each candidate’s experience and expertise fit those needs. Consider your current and anticipated future needs as you scale your startup.
A fractional CFO for startups should have expertise in:
- Cash runway / management
- Strategic planning
- Financial modeling and analysis
- Cap table planning
- Fundraising strategy and support
- Board / investor support – KPIs, Board Deck assistance, etc.
- Mergers and acquisitions
When hiring a fractional CFO, ask candidates for specific examples of how they’ve helped other startups with similar service needs to your own.
- How have they helped other startups manage their cash more effectively? Can they provide a specific example of helping to extend a startup’s runway? Have they ever stepped in to “save the day” by helping a startup from running out of cash? How did they achieve it?
- How have they helped other startups with their financial modeling and analysis needs? How did it improve the outcome? Did their financial modeling help with pricing, hiring plans, determining the best time to fundraise, or with other milestones? A successful fundraise or acquisition? How, exactly, did it achieve these benefits?
- If you expect to need heavy support around fundraising, ask each candidate for examples of successful venture rounds they’ve helped raise.
- What about venture debt? Do they have experience there?
- Do they have unique expertise outside of finance, like marketing, inventory management, or technology, for example, which could be a value add for your startup?
3. Industry/Sector Experience
Are they experts in your startup’s particular sector?
Next, you want to look at how well a CFO candidate’s sector experience fits your startup’s sector. For example, SaaS startups have much different needs from Fintech, which are different from Consumer, etc.
SaaS startups should look for a CFO with a deep understanding of SaaS metrics, including experience with revenue recognition, customer churn, pricing, and subscription models.
Consumer startups, on the other hand, need a CFO who understands things like inventory financing, marketplaces, and the costs associated with testing a product.
For Fintech startups, it’s crucial to hire a CFO who has financial services experience, understands crypto payments and accounting, and keeps up to date on the regulatory landscape.
Will they expand your network of investors and partners?
When it comes to successfully scaling a startup, it’s what you know and who you know. Beyond bringing relevant expertise to the table, your CFO should also bring quality relationships.
Ask your CFO candidates about their VC relationships. Do they have history and warm relationships that will help you get a foot in the door with the best investors? Which VC firms have they worked with? Are these firms that would be a good fit for your startup’s investment needs?
What about other companies in your industry, your sector, and the startup ecosystem as a whole? Will they help you tap into synergies to accelerate growth and expand your footprint?
Relationships are currency, and they’re also credibility. An experienced CFO with a successful record should have plenty of contacts ready to pick up the phone when they call. If they don’t, that’s a red flag.
5. Process & Time-to-Value
Finally, you want to look at the expected time-to-value for your new CFO hire. Hiring a fractional CFO is significantly less expensive than the fixed cost of a full-time CFO, but it still costs money. You want to make sure that your new CFO will be up-and-running and delivering value to your startup as close to day one as possible.
Ask your candidates about the initial value they’ve brought to their past engagements. How long did it take to realize that value? What about the most significant value? How long did it take to achieve that? Remember, this is a CFO you’re talking to, so he/she should be able to quantify.
Other related questions to ask:
- How do they stay current with your startup’s sector? This is especially important in sectors like Fintech, which have unique needs that change constantly and rapidly.
- Are they on their own, or are they with a firm like Burkland that provides peer support, knowledge share, and access to the newest systems and technologies?
- How do they keep up with your customers’ needs?
- What kind of processes do they rely on to work efficiently and effectively?
- What finance systems and tools do they use?
- How do they measure their success?
A great CFO can help you build the right financial foundation to scale your company quickly and confidently. When hiring a fractional CFO, refer to this article to find the best fit for your startup’s growing needs.