Making Your First Finance Hire
- Relying solely on a founder's management of finances can lead to errors, miscommunication, and potential financial discrepancies, especially as the company's complexity increases.
- In the seed stage, hiring a part-time CFO is advisable.
- Beyond technical competence, attitude, business knowledge, and growth orientation are key traits to look for in a finance hire.
At some point in your entrepreneurial journey as a founder, you’re going to need help when it comes to keeping track of your company’s finances. Up until now, you’ve probably been tracking them yourself—you know your revenues, your expenses, your sales backlog, and how much cash you’ve got on hand. You might even be on top of some of your company’s financial ratios and other metrics.
The thing is, as your company scales, you’re going to find that you have less time to track the numbers with any precision—you’re busy juggling a lot of different priorities, particularly product, customers, and hiring. But at the very same time, the pressure on you is steadily growing to provide current and accurate numbers for your board, investors, and others.
The solution? Make your first finance hire.
Of course, if this is your first time making a finance hire, you might not know what kind of person you want, what level of experience, or where to find them. Here are some things to keep in mind as you prepare to make this important move.
In our experience, many founders just don’t want to let go of their company’s finances. While that approach might work well for the first six months or so of a startup’s existence, as the company catches fire and starts to scale fast, everything changes.
Founders just don’t have enough time in the day to keep track of their startup’s finances and do everything else they need to do. One day, a key input for the financial model is wrong, or the board and investors are told the company has six months’ cash on hand—and are then shocked to subsequently be told there was an error, and the company has only six weeks’ cash on hand. All because the founder who owns the numbers has too many things on their plate.
What level of finance hire should you make?
The level of finance hire you’ll need to make depends a lot on what stage your startup is in. If you’re in the seed stage, hiring a fractional CFO is usually the best approach. This is either an experienced CFO or company you hire on a part-time basis to keep track of your finances and do your financial reporting.
As you graduate from seed to Series A, then you’re going to need someone in house whose full-time job it is to mind the store—to book the revenues correctly, make sure bank accounts are tracked properly, ensure that someone is chasing down delinquent accounts receivable, and so on. You’re not hiring a CFO at this point. The person you’re looking for is a Director of Finance or Controller.
Finally, when you get to Series B or C, or are preparing for a major company milestone, then that’s the time to be thinking full-time CFO. At this stage, you’re likely going to be looking for a junior CFO, because most startups can’t attract (and don’t really need) a heavy hitter until they get to about $100 million in annual revenues.
Throughout these three stages, you may decide to retain your fractional CFO to close out the books and continue with bookkeeping.
What kind of person is going to be the right fit?
First, you’ll want to find someone with the right attitude. When they discover something that’s broken, they take the initiative to fix the problem themselves or offer solutions for you to consider.
Second, you need someone who knows the business. A finance executive for a pure software business is going to have a different approach than one for a recurring-revenue or hardware-plus-software business. When you bring in a hardware person, for example, they do financial models, KPIs, and benchmarks a certain way. And if you bring that same person into a SaaS company, it’s not going to work—and vice versa. The person you’re looking for should be 100 percent in lockstep with the kind of business you’re building.
Third, you need someone who can help your business grow. You’ve got a great opportunity to hire a high-quality athlete—someone who can wear lots of hats while doing their finance job really well. If you hire the right person—someone with a lot of raw intelligence, hustle, and a deep understanding of finance—they can be tremendously valuable to your company across the board. They might even scale right to your IPO.
Who can help you find the right person?
This is one area where your investors will likely have some really helpful referrals. Investors spend a lot of time interfacing with CFOs, and finance team members regularly rotate out of other companies in their portfolio. So, lean on your VC to make some suggestions.
Finding the right finance person at the right stage in your startup’s growth is particularly important for your long-term success. And maybe the biggest benefit to you is that when you get someone solid in this seat, a large amount of space in your brain opens up as the responsibility for this enormous cognitive load is moved from you to someone else: your first finance hire.