Over my career, I’ve had the pleasure of working with many startups. I’ve also helped many others transition from small to medium and from medium to large companies. A question I often hear is, “When should we hire a Chief Financial Officer (CFO)?”

While there really is no magic time in a company’s evolution that requires a CFO or experienced accounting professionals to handle financial statements and projections, the answer is almost always earlier than you’ve considered. Too often companies don’t value the importance of good accounting professionals and only hire those professionals when it becomes critical.  At that point, it’s difficult, expensive, and time-consuming for any accounting professional to clean up the historical financial records and prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP).  

When a company does a round of funding, whether debt or equity, the investors – which could include family, friends, angel investors, financial institutions, venture capitalists, private equity funds, or other funding sources – may require the company to provide a set of financial statements.  These statements usually include:

  • Balance Sheet 

  • Statement of Operations (Income Statement if there is net income)

  • Statement of Stockholders Equity (or Deficit)

  • Statement of Cash Flows 

These are just the basic statements. More often than not, investors will expect the statements to be prepared in accordance with GAAP.  GAAP is complicated and requires an accounting professional who has the background and experience to put these financial statements together along with the required financial disclosures.  A set of GAAP financial statements can be up to 35 pages of financial statements, financial tables, and disclosures.  

In many of the funding options available, investors will also require some sort of financial representation from management that the statements accurately reflect the operations of the company.  It is difficult for management to make those representations if they do not have a proper set of financials they can rely on as being accurate.

To verify these statements are properly prepared in accordance with GAAP, there are often requirements that the financial statements be audited by a reputable accounting firm.  These audits can be extremely difficult, time-consuming, and costly even with experienced accounting professionals preparing the statements and responding to the auditor inquiries.  

With an experienced financial accountant or CFO having knowledge of GAAP and how to apply those principles to the activities of your company, you will have reliable financial data to make business decisions. You’ll also be prepared for future funding opportunities, such as an initial public offering (IPO).  Additionally, you’ll be in a position for any potential acquisition of your company.  

A CFO can also provide support to management and the board of directors with preparing reliable financial projections and reporting on the financial results compared to those projections.  Typically, a good CFO will also provide support and leadership in other administrative responsibilities such as negotiating contracts, treasury, human resources, and information systems.  

When is the right time to hire an experienced financial professional? I suggest it is earlier than you think.  A competent CFO or VP of Finance can help make a big difference in the success of a company as a trusted business partner and advisor on strategic decisions.

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