Start-Up CFOs: Be Ready to Raise Capital, Recap, or Sell

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Being the CFO of a high-growth company can be both exciting and challenging. Business plans change, revenue fluctuates, and markets shift. Yet even with all the uncertainty, managing financial operations at a start-up’s fast pace is something many CFOs find exhilarating.

In more traditional business environments, you typically encounter two kinds of CFOs. First, there are the ones who are good at financial modeling and deals but may not be focused on building out the day-to-day infrastructure needed to better run the business. Second, there are the more retrospective CFOs who are often good at debits and credits and making sure audits go well, but aren’t very interested in looking too far into the future. Today, we’re seeing the emergence of a broader and more dynamic CFO who spans both these management types.

In many ways, both skill sets are building blocks for the start-up mindset. CFOs need a forward-thinking skill set to drive new initiatives and excite employees, board members, and investors. CFOs also need the ability to drive growth through both good times and bad. A disciplined approach that’s grounded in the practice of a traditional CFO is important because decisions are often made quickly and the margin of error is small. And finally, CFOs must understand which risks have the potential to pay off and help scale the business.

Regardless of where your experience lies or where you’re most comfortable, success as a CFO (especially in a start up) often means wearing multiple hats. In my journey, I’ve worn every hat possible. I’ve done audits, M&A due diligence, and held controller and operations roles, all of which gave me the potential to play a broader role in the companies I’ve helped to grow. It’s this experience that has allowed me to focus both on what’s happening now and what could impact future success for young, high-growth, companies.

Here are some essential agenda items for the start-up CFO taking an expanded role: 

Raise Capital, Recap, or Sell

A start-up CFO must be able to look into the future and make changes on the fly, knowing that the company may need to raise money or recap the company, to grow. I can say with confidence that it doesn’t matter if selling the company is or isn’t the ultimate goal—a CFO needs to be prepared to execute all three — a recap, capital raise, or sale — at a moment’s notice. If you’re operating with these events in mind, you’re going to have well-managed financials and an eye on the health and future of the business. At the same time, however, you may also feel threatened. If you work as though you’re planning to help sell the company, then that just might happen and you could be out of a job. However, in my experience, if you’re growing and doing what is best for the business, it will enhance your own reputation.

Understand Metrics

Even if everything appears to be going well and the business is nearing profitability or already there, without a keen understanding of the drivers or obstacles to growth over time, you could be missing opportunities. You also want to ensure that your financial and operational metrics are in alignment. Investors want to mitigate risk when they’re making a large investment. Anyone considering investing in or attempting to purchase your company is going to want to see the big picture and hear the company’s full story. In addition to learning about the organization’s finances and operations, they’ll want accurate insight into performance trends over time.

If you don’t have this nailed down today, take a step back. Understand where deficiencies and opportunities exist. If you know the drivers behind your company’s growth, you can develop and track key performance indicators (KPIs) for marketing, customer success, and sales. For example, do you know if your company’s marketing efforts are delivering an adequate return on investment?

Market Gaps

Understanding the market or markets the organization competes in is critical for uncovering new opportunities. If you already have an 85% market share, you likely need to expand to another vertical or industry and, if you can’t do that, you may need to acquire a competitor. This may seem like something only the CEO should be concerned with, but if the CFO is not moving the company forward, the company is losing ground.

Sometimes founders or the CEO or leadership lack the experience, confidence, or skill set to look into new markets. In many cases, the CFO can bridge that gap through analyzing the risks and opportunities and helping execute the resulting strategy.

Invest in Audits

Audited financials are something the company is going to need. You may not be able to afford an audit. If that’s the case, have a third party at least review your financials to validate them. It will give the organization greater market credibility and will help accelerate the process of a capital raise, recap, or acquisition.

Substantiate the Story

Once you have audited financials, you then can craft a legitimate business model and pro-forma forecast that can be substantiated through the audit and beyond. For instance, say you’re trying to secure capital. You can’t make up a pipeline of new sales; it must be substantiated. Sure, your product may be terrific and some buyers or investors may be willing to take a chance because they’re enamored with your concept.  However, investors are looking for results. If you can’t get sales or aren’t solving a problem that will lead to sales, you’re going to have a lot of issues raising money or even generating enough revenue to sustain the business. Craft your story based on what you actually believe the company can do, or better yet, provide proof of what it’s already doing.

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