I’m Jaime Medina, CEO and Co-founder of The Startup CFO, where we provide financial services to startups that, due to business volume or project stage, need to outsource their financial management. Using this setup, our clients count on the experience of a senior team, without incurring in large costs in the first steps of the startup.
Together with my partner César and after our time at Ontruck, we decided to found The Startup CFO in order to do what moves us the most: help other entrepreneurs change the world by generating innovation and employment.
In my spare time I like to sing, play golf and chess although luckily, my friends say that I am better at finance.
Any startup must have access to the same resources as a large company in its sector if it wants to grow over time.
When the size of your startup is not large enough and you do not have the capacity to hire specialists for all departments (sales, marketing, human resources, etc.), the solution is to outsource those areas where you are not a specialist, such that you can focus on the development and expansion of your business.
From the outsourcing of the financial area, the position of the External Chief Financial Officer (External CFO) arises, a position that after my experience in McKinsey, Ontruck and Geoblink, we have assumed in more than 20 startups such as Cobee or Idoven in recent years.
I have written this article in order to explain what an external CFO is and how this position can help you grow your startup while allowing you to reduce costs.
An external CFO is a professional with extensive experience in the world of finance who performs the functions of a financial director in a startup, but without being part of its staff. Our functions as External CFO in the startups where we carry out this function are very varied:
- Preparation of your complete business plan, projecting metrics, P&L and treasury.
- Monthly reporting of results, internal and for investors.
- Update of forecasts, always changing in startups.
- Establishment of financial processes.
- Proactive analysis of metrics.
- Support in decision making at an economic level.
- Support in financing round processes.
- Negotiation with potential new investors.
Some of the reasons why your startup may need the position of an external CFO are the following:
- If you or your investors need a professional business plan and reporting.
- If you have some lack of control in your KPIs or the accounting of your income and expenses.
- If you want to prepare well to launch a new round of financing.
- If you have difficulty deciding which path to take based on your business metrics and you need experienced help.
Many startups do not need to hire a full-time CFO due to their small size, and they cannot afford it either.
For day-to-day things a junior clerk can do a lot of work, but for the most strategic areas you need experienced help. However, an experienced CFO is expensive and his/her experience is not needed most of the time. If this is your case, it is better that you have an external professional to whom you pay only for the services that your company needs, thus optimizing costs for your startup.
Normally the volume of added-value work does not require more than a few hours a week and you are saving the labor costs derived from having someone full time, so you can end the relationship whenever you want with no further cost. It can be a good first step before your startup requires a full-time CFO.
Having the experience of a specialist in the financial field allows you to control your company’s performance and prevent you from doing something wrong with your money, since there are many problematic situations that a startup can face due to lack of experience in this area, especially in cash management.
Taking these types of risks can lead a startup to failure, so it is something you should avoid.
In order for your startup to grow, you need the participation of investors who contribute in capital rounds.
Since we have a deep knowledge of the financial world and experience in dealing with investors, having an external CFO allows you to have a greater negotiating capacity and thus increase your chances of attaining a good financing round and grow faster.
Outsourcing this position allows you to focus your time on the development and sale of your products or services, which is where you get the most out of your time, while you have the peace of mind of having someone manage the financial affairs of your startup.
Due to this position being external to the startup itself, his/her vision will always be much more neutral when making difficult decisions, and we will transparently communicate the financial status of the startup to you.
A point of view of a person external to your startup will always be more rational and objective than that of someone who assumes this position internally, since the emotional involvement of the latter will be much greater (especially when it is one of the founding partners).
It is something we often see in startups where we handle financial affairs.
When a startup hires an external CFO, it does so with the aim of optimizing its financial results.
For this reason, our motivation will always be to work in search of the best results and you will not be forced to extend the relationship with this figure if the results are not as expected.
In addition to the fact that very few startups are large enough to have a full-time CFO, it is actually something that you probably do not need.
What you do need is to have a trusted professional who is confident when it comes to managing the financial areas of your startup to gain peace of mind and invest your time in what you do best: develop and sell your products or services.
You already know that in the startup world everything evolves very quickly and having a finance specialist to help you can make the difference between winning a financing round or not, as well as avoiding making a mistake in the management of your finances that may result fatal.
So whether you are considering having an external CFO or if it is the first time you hear about this position, we encourage you to contact us.