With more venture capital money, start-ups have better tools to grow quickly.
And while pure top-line growth used to be enough to satisfy VC investors in recent years (especially since the start of the pandemic). Most investors also want to ensure that gross margin, EBITDA, and the balance sheet are under control, even at the seed stage of a business.
Founders with marketing or technological backgrounds will hire a fractional CFO. Because they need a finance team member for P&L responsibility, budgeting, forecasting, and process and infrastructure.
A fractional CFO is a consultant who works part-time with start-ups to manage their finances. This includes budgeting and systems and overseeing the accounting function (in-house or outsourced).
Fractional CFOs focus on the future and “what will happen,” while an outsourced accounting firm focuses on “what already happened.” The resources are no longer a nice-to-have but an expectation and requirement of savvy investors who want their portfolio companies to be managed well.
Benefits
- Expertise for a fraction of what it would cost to hire someone full-time
- Fresh eyes and knowledge of how similar companies and P&Ls work can help.
- Relationships already in place with banks and other lending institutions
- With the threat of losing a job, accountability is clear and fair.
- Knowledge of the newest FinTech platforms and automation tools
Automation
FinTech is one of the hottest areas of technology right now. SaaS platforms automate every aspect of finance, including accounting, accounts payable, banking, accounts receivable, FP&A, and debt financing. With this kind of choice, even a part-time CFO can be in charge of all of a company’s financial functions and:
- Payouts can be looked at and approved quickly.
- Collect money owed to you and keep track of it.
- Plan and handle money
- Take care of the ledger
- Find ways for start-ups to get money in between rounds.
FinTech and fractional CFO
Recent developments in FinTech are very helpful for fractional CFOs. Still, fractional CFOs are just as important to SaaS platforms because they help them get users’ feedback, compare themselves to competitors, and bring workable solutions to their clients. With paid ad costs going through the roof this year, offering free trials to finance experts can be a much cheaper way to get new customers.
Fractional CFOs are trusted advisors, so if they enjoy a tool, their clients are more likely to use it than if they cold-called or paid for marketing. Collaboration between these two groups will speed up innovation by a factor of a thousand and lower company costs. W2 employees are becoming increasingly rare, and manual accounting methods are being phased out.
The article has been published by the editorial board of the Fintek Diary. Happy Reading. For more information please visit www.fintekdiary.com
