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6 benefits of a virtual CFO for startups

Never has it been a better time to create the next billion dollar business. I've witnessed more than one entrepreneur go from incorporation to successful multi-million dollar exit within 18 months and this can happen to you too!

"Begin with the end in mind." ~ Stephen Covey

If you have the next uberIdea and dream about leading the next unicorn, then you want to get your business off on the right foot. It's fair to say many tech startup entrepreneurs put lawyers and accountants on the bottom of the spend list in those early days, but there are a few reasons why a small engagement early on can really move the needle faster than you might think. Here are 6 ways you'll benefit from the services of a Virtual CFO early on:

1. Recommendation of the right accounting software. There are many cloud-based, affordable software packages out there that are great for startups. A good Virtual CFO will be strong in management accounting and able to match the right software to your business and advise you on ways to reduce admin time and cut down on labour costs. Don't expect the bookkeeper to know what's best. Bookkeepers are to accountants what nurses are to doctors. Your nurse administers the medication, he/she does not prescribe it. Same thing.

2. Architecting the G/L in a meaningful way, and cleaning up the books. A well defined general ledger takes into consideration budgetary accountability, departmental spending, and taxation implications so that the reporting process can be meaningful and efficient. This is a task for your Virtual CFO, not your bookkeeper or public accountant. Management accounting is the key expertise required for a meaningful G/L. But once it is architected (and historical transactions are considered), an intermediate bookkeeper can easily maintain it. The G/L is your transactional filing system, do not underestimate the benefits of setting it up in a meaningful way.

3. Creating a financial forecast and bank facilitation. If you really do have the next uberIdea then you want to take it to the bank. BDC has a greatStartup Loan that many of my clients take advantage of. Establishing a line of credit at a bank will require financial forecasts (Pro Forma Income Statement and Balance Sheet). Pick the right bank - RBC is still the tech leader in Ottawa. An experienced CFO is fluent in both entreprenese and bankology and can make the process faster and easier on everyone.

4. Recommendation of the right Accounting Firm. Selecting the right legal and accounting firms is important. This may come as a surprise but it is really important to form relationships with the right firms if you have ambitious goals. The best-matched firm will have portfolio of clients in your industry, a rolodex of like-minded entrepreneurs, and show a keen interest in what you are up to. If you are selecting an accounting firm because it gave you the cheapest quote for Audit and Tax, or has the most recognized firm brand, you are going to get what you pay for in both instances. An experienced CFO can act as matchmaker to help you choose wisely.

5. Monthly Team Meetings. It's been famously said that early stage tech founders often include a hipster, a hacker and a hustler, but disappointingly 'numbercruncher' isn't as frequently referenced. A coincidence that most startups fail? I think not. ;) Including an experienced financial perspective as part of strategic and operational discussions early on can help founders avoid many pitfalls and beat the odds. There is not a decision that a company makes that does not have short, medium and long-term financial implications.

6. Establishment of formal corporate budget. Cash is king! Experienced entrepreneurs know this all too well and if you are new at the game you do not want to learn this lesson the hard way. When done right a corporate budget formalizes goals and sets milestones. It is based on assumptions, and establishes early success indicators. It is the best tool for keeping everyone accountable early on. Amend quarterly to keep the business on track.

Every startup experience is different and varied in complexity. It's really impossible to create a one-size fits all package that will adequately fit every startup, but it in the interest of time and budget constraints it's a decent MVP to what hopefully grows and expands with your company.

Before you engage any one Virtual CFO, interview many. Despite the fact a virtual CFO is a contractor role, it is still a very strategic hire and the right fit is important. Interview 3-5 to start and make sure it feels right.