One of the most determining factors for this high “mortality” rate is the neglect of the financial area since the first months of the company's life.
For this reason, in today's article, our Managing Partner, Partricio Hunt, wanted to summarize the roles and responsibilities that concern financial directors of companies and the importance of adding that to your team Expertise financial from an early stage to achieve the survival of your company.
Responsibilities of a CFO
From Intelectium's perspective, the role of the Chief Financial Officer (CFO) is the most responsible person in the financial area of a company and his responsibilities, in general terms, include (but are not limited to) the following:
- Develop a world-class financial model that allows us to simulate different scenarios and evaluate the strengths or weaknesses of the company's business model, in order to establish the best financial strategy.
- On the basis of the above, define the best possible financial structure (mix of equity and debt) and project and anticipate capital needs of the company.- Control the evolution of income and expenses, and its effect on cashflow.
- Develop and keep financial projections up to date on the company's Deck.
- Collaborate with the CEO in obtaining funding for the company.
- Establish policies and processes related to the company's economic and financial management.
- Create dashboards and develop financial reports to keep the Board and investors up to date.
- Develop relationships with banks and other alternative financial institutions and obtain non-dilutive funding.
- Be aware of market opportunities and make recommendations on potential mergers and acquisitions.
- Recruit and form a finance and accounting team first-rate in due course.
How is the role of CFO and the financial department of a company structured?
If we wanted to structure the role of the CFO in a clear way, it can be grouped into four major sets of tasks:
1) “Ensure liquidity” which means that the company has enough money in the treasury to be able to meet short-term liabilities;
2) “Reporting”, which involves supervising everything related to the correct accounting of revenues, expenses and investments, in such a way as to reflect the company's financial health as precisely as possible;
3) “Forecasting”, to plan the future and anticipate the company's needs; and
4) “Return on Investment”, which involves communicating everything related to the company's finances to stakeholders in a timely manner, raising awareness about the reality of the company and its needs, to generate alignment around the company's strategy with the objective of achieving the expected results and maintaining adequate strength and stability that guarantees the continuity of operations in the long term. In order to fulfill these responsibilities, CFOs typically organize financial departments into three major areas with the following roles:
- Strategy and Projection: Responsible for unifying all the information available in the department, understanding the performance of the different products and areas of the company, projecting the company's economic-financial performance into the future, and collaborating with other departments to optimize financial performance and develop growth and expansion strategies, including the best way to finance them.
- Treasury: Responsible for ensuring the company's liquidity through the diversification of funding sources and mechanisms.
- Controllers: Responsible for correctly accounting for income, expenses and investments, monitoring compliance or deviations from budgets, and creating reports of all kinds.
When is the best time to hire a CFO?
Startups have the peculiarity that they need the role of a CFO in a highly seasonal way... that is, at startup, someone with a very specialized level of financial knowledge should prepare a sophisticated financial model, which allows them to develop scenarios, identify the main drivers of the business, the expected margins, the costs that should be incurred to develop and expand the business, etc. A model of these characteristics allows us to calculate cash requirements under different circumstances in a quite a way accurate and with a high degree of confidence. Once this has been done and the initial capital has been raised, if the funding round has not yet been very large (let's say less than 1.0 M€), the finances in a startup will go through a more administrative phase. It will be important here have the services of an agency specialized in startups. Especially since there are a number of issues that are important from the perspective of public bodies that finance R&D, which are important to consider in accounting closures. A traditional agency does not usually have the “sensitivity” necessary to detect these issues and can induce entrepreneurs to carry out accounting closures that preclude them from obtaining funding from organizations such as the CDTI for entire years. Later, When it becomes necessary to raise capital again, needs skyrocket again, it is necessary to update the financial model, make the corresponding projections, answer questions from potential investors, etc. From then on, and probably with the entry of a VC, the role of the CFO will become more important, but the tasks to be carried out will still be far from occupying an entire day of a senior person. The problem is that the things that need to be done do require the expertise and previous experience of someone who is senior. This is especially when an external CFO adds the most value to a startup.
Sometimes it happens that the CEO or other of the founders has a very good financial background and can do this job. In these cases, this person can present all the material to investors and answer their questions safely and appropriately. Once the funding has been obtained, however, the CEO has to migrate his focus and dedicate himself fundamentally to building a team and acquiring customers, among many other things. In these cases, a CFO can be dispensed with until the close of the round. From now on, if the company must dedicate many months to product development or if it grows at a slow pace, financial tasks become more operational again. In these cases, the figure of an external CFO, together with the collaboration of a good specialized management, makes it possible to carry out good operational control of the business, since updating and controlling the financial model, starting with monthly accounting closures, takes relatively little time. Therefore, the figure of an internal CFO is not so necessary because if we return to the tasks they perform, we would find the following photo:
- Controllers: the number of invoices issued and received, or the number of payrolls is relatively low. The reports are relatively simple. These are tasks that can be done once a month in a few hours.
- Treasury: Having recently done a round and executing according to the business plan as planned according to the financial model, for at least a few months we should be calm and not need to seek new capital except to monitor the achievement of public funding.
- Strategy and Projection: It is a task that, like financial control, can be performed in a few hours once a month.
But regardless of the amount of time you have to dedicate to finance at this stage, you do have to take into account a number of issues specific to newly created companies that will allow you to optimize the company's financial performance and save money:
- Social Security Bonuses and compatibility with Tax Deductions through the Innovative SME Seal.
- Activations of R & D expenses to then be able to benefit from the above.
- Analysis of the company's solvency to determine if it is necessary to make reclassifications at the accounting level so as not to close the year in a crisis situation (according to the EU definition) so that the company can request aid such as those offered by the CDTI.
For this reason, and because it may be the case that the company has raised initial capital without having a good financial model that allows it to control the evolution of the business, at this stage it is advisable to have hired a External CFO service, or CFO as a Service, as we like to define it at Intelectium. This service, in addition to guaranteeing us the correct execution of the tasks described above, includes, in our case, the development of other value-added tasks (implementation of end-to-end digitized reporting processes and systems, recommendations at the level of ERP implementation, support in investor relations, etc.) that free up CEO time and give greater guarantees to investors that the accounts and performance indicators they receive are reliable and represent the true economic-financial reality of the company. From Intelectium we offer services of agency specialized in startups and External CFO services. You can contact us at comunicacion@intelectium.com to request more information without any commitment.
