Stats suggest that 90% of start-ups go under. And one of the leading causes for start-up failure is the lack of financial expertise. To tide over this challenge, and avail of financial expertise that doesn’t cost an arm and a leg, outsource the position of the CFO. Here’s how to make this strategy work:
 
 
Identify the right person:
 
Look for someone with a minimum of 15 years of operating finance experience, including three years experience as a full-time CFO, suggests Jayant Tewari, a Bengaluru-based outsourced CFO services provider.
 
You will also want the person to have substantial experience with start-ups, and to understand that start-ups have limited budgets.
 
Strong ethics and values are mandated as well because the outsourced CFO will represent the company vis-à-vis customers, vendors, service providers, banks, merchant bankers and potential investors—and is sure to interact with at least the last two socially and at networking events. “You will want the person to ‘put Chinese walls around’ his professional knowledge of your business,” cautions Tewari.
 
Don’t attempt to fix the hours of work:
 
“We need about 30 to 40 hours of our outsourced CFO’s time a month,” says Alok Subudhi, CEO, Thinkways Software Technologies. “Sometimes, we need the CFO at very short notice.”
 
Tewari insists an outsourced CFO engagement works best when the person commits to 24x7 availability and complete responsibility, instead of agreeing to perform a list of activities with corresponding time commitments because most issues that a start-up could face can not be envisaged.
 
“Focusing on things-to-do leads to a short-term tactical approach instead of the strategic view that does a company well. It would preclude the CFO from contributing to the business in one-off ways, such as solving inter-promoter differences, handling judicial proceedings and steering an investment transaction,” says Tewari.
 
Complete financial responsibility makes finance and legal issues the CFO’s area, not in an advisory capacity, but in a think-plan-execute mode, with the CEO stepping in to jointly make decisions.
 
Make it clear that the CFO will be expected to perform even in business uncertainty:
 
A start-up is synonymous with uncertainty. Its performance may fall short of the projection by a huge margin. In a non-funded environment, the paucity of cash in-hand can make day-to-day operations challenging.
 
Angel investors or non-promoter board members may have promised support, which may take time to materialise, and mean more financial juggling in the interim.
 
Sometimes, the business processes of a start-up evolve in random ways, making it challenging to strictly comply with statutory documentation requirements and deadlines. Then, the CFO’s inputs are vital to guide the company.
 
“An experienced candidate will know all this, and will have no qualms in taking up the assignment despite these realities. Still, do tell the outsourced CFO that you expect him or her to anticipate rather than be told about the realities and constraints,” says Tewari.
 
Spell out what financial control support you expect from the CFO:
 
A financial controller looks after accounting, statutory and regulatory compliance and treasury. A CFO focuses on financial strategy, corporate structure, and on helping the management to make more financially-effective decisions, by translating the management’s information needs into a form intelligible and obtainable by the accounts team.
 
“The outsourced CFO can guide the accounts person to ensure the controller’s role is effectively performed. To this effect, our accountant consults our outsourced CFO a couple of times a month,” shares Subudhi.
 
Establish the timeframe in which you need action:
 
“Give the new CFO a maximum of two meetings to understand your set up, and establish a timeline for performance thereafter,” suggests Tewari.
 
Include your auditors, company secretary and lawyer, if any, in those meetings. Make it clear that you expect the CFO to chart out and obtain the support of these professionals to the financial strategy he seeks to implement. While a full time CFO would probably have two quarters for this, the outsourced CFO is often expected to do this within the first month of the engagement.
 
Suitably authorise the CFO:
 
In their search for growth, promoters, especially first-time promoters, might stretch the corporation to the limits of bankruptcy. A good CFO will rein them in to safeguard the business. To do so, however, the CFO must be given sufficient authority.
 
“Our outsourced CFO has been empowered to enforce budgetary expense controls, preferably on an ongoing basis with no parallel ‘authorisers,’ and to enforce linkages between expenses and revenues/funding so that the failure on any count would automatically curtail expenses,” says Subudhi. “We expect the outsourced CFO to fully implement decisions vis-à-vis finance and enforce decisions vis-à-vis other functional areas to the extent that they call upon the company’s resources.”