Entrepreneur Mick Spencer has established a solid relationship with CFO Danuel Rebecca – and the pair found some innovative ways to make the startup CEO-CFO connection a success.
Spencer founded ONTHEGO, an online, custom sports apparel company, after dropping out of university at the age of 21 with just $150 in his bank account. Since launching in 2012, ONTHEGO has kitted out more than one million people in 10 countries.
The company recorded 130% revenue growth in the 2016/2017 financial year and has achieved 300% year-on-year growth since June this year.
To achieve this rapid expansion, ONTHEGO relied on having a Chief Financial Officer with particular skills in managing high-speed businesses – and Spencer believes it was also critical to have a functional and productive relationship between the CEO and CFO.
Danuel Rebecca performs as Spencer's CFO on a part-time basis. Rebecca is also CFO for a number of other emerging businesses through his business CFOPartners.
“We had a contract CFO prior to Dan, but as the business was going through huge growth and also raising funds, we wanted someone who understood technology and scale - and that's Dan's experience," says Spencer.
The company had an internal, full-time finance function and really needed a CFO, but couldn't afford to pay a full-time CFO salary, Spencer says.
“Dan was able to deliver what we needed at a high level for the business around governance, as well as rolling up his sleeves to look at our day-to-day operations," Spencer says.
“He has also made important observations around what has to change for us to double or triple growth year-on-year," he adds.
When Do You Need A CFO?
Organizations should consider hiring a CFO when the CEO and more junior financial staff no longer have the skills to adequately evaluate the organization's fiscal standing, assess cash flow, forecast future financial needs and inform business strategy. Some experts advise $10 million in annual revenue as a marker that it’s time to hire a full-time CFO. But don’t forget that part-time/fractional and virtual CFO-as-a-service offerings are available.
While many organizations may wait to create this role until they begin to experience financial challenges, we recommend a more proactive stance. Ask yourself:
Are we beginning to pursue a growth strategy? If so, you’ll need deep insights into P&L, income and cash flow statements. Who will look at the books if you spot an acquisition opportunity? Banks and other potential investors like having a CFO attest to accuracy and completeness. Oh, and have you calculated your valuation multiples lately?
Do we have a sound, repeatable planning and budgeting process? If not, you lack a firm financial foundation. Ad hoc is no way to run a business.
Are we using our data fully, and not just in the obvious areas? For example, are we mining ecommerce data to inform customer success programs? CFOs tend to champion data use.
Do we feel confident in financial reporting requirements? For example, were intangible assets impaired due to the economic downturn? If so, how will you account for that?
Then there are industry-specific considerations. For many manufacturers, retailers and distributors, the pandemic revealed weaknesses in supply chain operations that an experienced CFO can help address.
CFO compensation in public companies is typically a mix of cash and stock. In both public and private businesses, remuneration is based on a number of factors, from company size and industry to geography, experience, seniority and how many finance/accounting divisions or departments report in to the CFO. In 2021, the highest-paid CFO by a wide margin was Goldman Sachs’ Stephen Scherr, at $20.2 million total comp. Among all companies, U.S. CFO pay as of early 2021 averaged $394,235, according to Salary.com data. But at smaller companies, pay hovers between $150,000 and $200,000, according to salary and job sites.
A deep dive into the CFO’s role in a startup
What Is a Chief Financial Officer (CFO)?
A chief financial officer (CFO) is the highest-ranking financial professional in an organization and is responsible for the fiscal health of the business. The CFO’s responsibilities include, but aren’t limited to, building a top-notch finance and accounting team, ensuring revenues and expenses stay in balance, overseeing FP&A (financial planning & analysis) functions, making recommendations on mergers and acquisitions, obtaining funding, working with department heads to analyze financial data and craft budgets, attesting to the accuracy of reports and consulting with boards of directors and the CEO on strategy.
CFOs may also help set technology direction, especially fintech, and make recommendations on everything from supply chain to marketing based on their fiscal insights and industry knowledge.
The most-valued CFOs are visionaries — they have an eye toward the future, work closely with top leadership and aren’t shy about recommending strategic moves.
CEO vs CFO
The chief executive officer (CEO) is a company’s highest-ranking executive. Depending on corporate structure, the CEO may be responsible for all aspects of a company’s operational and fiscal health, or a president may share some duties. The CEO is the official face and voice of the company to press and analysts, the general public and, if applicable, the board of directors.
CFOs are the most senior financial officers in an organization. They report directly to the CEO and work closely with the board of directors.
While the CEO occupies a higher-level position from an org-chart standpoint, in high-functioning companies, the CFO and CEO work closely and collaboratively, with CFOs serving as sounding boards, strategists and risk mitigators.
Financial Controller vs CFO
A financial controller is a CPA (certified public accountant) and often holds an MBA. Financial controllers are responsible for preparing financial reports and analyzing financial data. The financial controller is generally in charge of the accounting function in an organization and reports to the CFO. A controller may be part of a team that includes bookkeepers, accounts receivable/payable clerks, payroll specialists, tax preparers and accountants.
The CFO relies on the reporting generated by accounting and the financial controller to advise the CEO and board on the company's strategic financial direction. The controller and other functional specialists report to the CFO.
- What informs the need for a CFO is less company size than a desire for a strategic adviser with deep financial expertise.
- CFOs are captains of a team that covers both accounting and finance and consists of senior leaders, such as controllers and VPs of finance, and operational staff — accountants, bookkeepers, tax specialists, data analysts.
- Serving as a CFO requires a background in accounting or finance and an advanced business degree, generally including an MBA. But it also takes plenty of soft skills.
Chief Financial Officer (CFO) Defined
The chief financial officer (CFOs) holds the top financial position in an organization. They are responsible for tracking cash flow and financial planning and analyzing the company's financial strengths and weaknesses and proposing strategic directions.
CFOs are accountable to both the organization and various regulatory entities and authorities, including the Securities and Exchange Commission (SEC) in publicly held companies. They are well-versed in both generally accepted accounting principles (GAAP) and state and federal regulations, such as the Sarbanes-Oxley Act.
What Does a CFO Do?
The CFO’s role is twofold: Oversee the organization's financial activities, including being responsible for the finance and accounting professionals who perform operational functions, and serve in a strategic advisory role for the CEO and C-suite peers.
Brainyard’s Winter 2021 Survey shows how finance and business leaders rank success factors and how those priorities have changed over time.
Meeting revenue and earnings goals and keeping cash flow stable are clearly in the CFO’s purview. Finance chiefs also advise department heads across the organization, assisting them in both maximizing revenues, if they serve in a revenue-generating capacity, and controlling expenses without sacrificing customer or employee satisfaction or the company’s reputation.
The CFO helps select skilled staff for the finance team and works with departments to allocate budget for human capital management.
CFOs put complex data — current, past and predicted financial results — in perspective and help the CEO make sound financial decisions: Should we introduce this new product or service? Can we afford to on-shore our supply chain? What are the tax implications of our employees working from anywhere?
On a macro level, CFOs are responsible for:
Liquidity
Liquidity refers to an organization's ability to pay off its short-term liabilities — those that will come due in less than a year — with readily accessible, or liquid, funds. Liquidity is usually expressed as a ratio or a percentage of what the company owes against what it owns.
CFOs are concerned with ensuring that customer payments are made in full and on time and controlling expenses so that enough cash is on hand to meet financial obligations.
Return on investment (ROI)
Part of a CFO’s strategic focus is on ensuring a strong return on investment (ROI) for their organizations. ROI is a measure of the likelihood of receiving a return on dollars invested and the precise amount of that return. As a ratio, it looks at the gain or loss of an investment as a percentage of the cost.
Because ROI is a relatively basic KPI that does not account for all variables — net present value, for example — CFOs add context to evaluate whether a project will deliver sufficiently robust ROI to be worth the investment.
Forecasting
Importantly, CFOs don't only report what is — a significant part of their value to an organization is their ability to accurately predict likely future outcomes. That includes financial forecasting and modeling based not only on the company's past performance but on internal and external factors that may affect revenue and expenses. The CFO is tasked with making sense of the various departmental level forecasts to create profit projections for the CEO and shareholders.
Internal factors include sales trends, labor and HR-related costs, the price of raw materials and more, while external data inputs could include opportunity cost for capital, shifts in market demand, emerging competitors and advances in technology.
To monitor the external environment, CFOs may rely on government data, analyst firms and business and general media, supplemented with insights gleaned through trade and association memberships and the input of board members, lenders and others.
Reporting
Financial reports including balance sheets and P&L and cash flow statements help both internal leaders and external stakeholders understand the financial state of the business, and it’s up to the CFO to attest that these statements are accurate and complete in accordance with generally accepted accounting principles (GAAP).
Although private companies are required to file financial reports with the SEC only if they have $10 million or more in assets and 500 or more shareholders, many businesses create these statements anyway so they’re available should the company seek a bank loan or venture capital or equity funding.
Key Duties of the CFO
The key duties of the CFO position vary depending on the size of the organization, its industry and whether it’s a public or private company but generally fall into three broad functional areas: controller, treasury and strategy and forecasting.
Organizations may have professionals overseeing some or all of these roles and reporting to the CFO.
Controller: Controllers run day-to-day accounting and financial operations and often hold a CPA or MBA. They are responsible for creating reports that provide insights into a company's financial standing, including accounts receivable, accounts payable, inventory and payroll.
Treasury: The treasurer is responsible for the company's liquidity, debt and assets. That includes any investments the company may have, whether physical assets, such as buildings and equipment, or financial investments.
Strategy & forecasting: Strategy and forecasting involves using available data and reports, both internal and external, to advise on areas including product development, market expansion, human capital management, M&A and capital investments. It’s also where structured planning and forecasting exercises, like scenario planning and FP&A, fall.
Controllers, treasurers and FP&A analysts are invaluable members of the team, but in all these areas, the buck stops at the CFO’s desk.
Relationship between CEO-CFO of the company
The CEO is the chief executive officer of a company and is above the CFO on the organizational chart. CFOs often work closely with the CEO and weigh in on high-level strategic decisions. Both the CEO and CFO have a direct conduit to the board or directors and are entrusted with the organization's stewardship.
Making it work
The fluid nature of the relationship is what makes it successful, says Spencer.
“Dan contributes a certain amount of hours a week, but we can talk to him at any time. He comes into the office each week for face-to-face time about critical things and he also sits in on board meetings, which are held every six weeks.”
“Dan also works with my teams across commercial, sales, finance, [and] merchandise so we get that top-level finance input to whatever's going on," he explains.
The business is currently exploring acquisitions as well as getting ready for capital raising. To support this, the team is hiring a Finance Manager who will operate under Rebecca's guidance, but can in the future move into a Finance Director role.
The new Finance Manager will be responsible for managing technology, cross border transactions, as well as global customers and manufacturers.
Dodging difficulties
In such a fast-paced environment, conflicts could arise. Spencer and Rebecca say successfully negotiating these situations comes down to open communication so they can talk about issues impacting the business or themselves.
“If we do have a problem, we just pick up the phone and have a discussion about whatever that issue might be. The idea is to aim for a quick resolution because if it carries on, that can turn into a very nasty relationship quite quickly," Spencer says.
“The key is for Dan and me to have a clear idea of what success looks like for both of us," he adds.
Spencer says Rebecca's experience is unique. “You can find people who have Dan's qualifications and experience but they're very conservative and they don't understand big ambitions. Or you get people who are too in the trenches, who can't see the strategy. Dan is the whole package."
While Rebecca's role as CFO at the moment is 80% operational and 20% strategic, Spencer sees that relationship inverting over the next 12 months so that Rebecca spends the bulk of his time on strategy.
“As we grow, the finance function will grow. I don't have pre-conceived ideas; I'm more about outcomes," says Spencer, who fully appreciates the value of having an experienced CFO in his business.
“It's very important founders spend time finding the right CFO and also become financially literate themselves. Sometimes people say, 'Oh you've just got to hire people smarter than you', - and you should. But it's really important founders understand the fundamentals of business finance as well."
Outsource advantage
Lisa Callaghan, Director of Interactive Accounting, is in a similar situation to Danuel Rebecca. Her business also provides outsourced CFO services to emerging businesses. She says the relationship between CEO and CFO will often depend on the former's financial acumen.
“Some of the first-time founders require a lot of education about financial concepts and understanding of what the CFO does," she says.
Callaghan says one of the greatest benefits of having a CFO in place is that investors can have confidence in the robustness of the financial accounts.
“It is easier to attract funding when you have third parties who validate the story the CEO is telling. Talented CFOs, CTOs, CMOs in key roles in the business validate the founder's ability to attract really good talent," she says.
She adds that getting that validity extends to the people who are on a company's board, and the make-up of existing investors.
“The more you can surround yourself with people that have a good network and a good reputation, the more your ability to raise money improves - and the higher the company's valuations will be."
Having a great CFO also allows the CEO to focus on his or her strengths.
With the CFO ensuring the 'hygiene' of the financials – setting up the admin, financial and reporting systems - the CEO can concentrate on attracting customers, developing strategy and building new products.
The partnership between a CEO and their CFO may not always be easy, and conflict is common in a fast-paced environment. But if the right parameters are put in place from the start, this relationship can be a successful one.
Key Takeaways on the roles of CEO-CFO of the company
- Good startup CEO-CFO relationships begin with open and honest communication.
- Dealing with conflicts as soon as they arise can reduce pain points.
- Emerging businesses could consider appointing a CFO on a contract basis, transitioning to a full-time finance chief when funds allow.