TLDR: Probably when your company hits $5M+ in Annual Recurring Revenue (ARR). However, you will need people with other skills and attributes until you get there.
Let’s dive into it:
Pre-Revenue → You
In the earliest days, successful founders need to be extremely efficient: drive as much productivity as possible with the few resources they have until they “hit something.”
Bookkeeping, planning, and modeling are skills and activities that someone in the founding team should perform at a good-enough level. Your company most likely doesn’t need a spreadsheet with 23 tabs with 600 rows in each tab. Keep it simple.
Accounting and payroll should definitely be outsourced. It’s cheap, adds 0 value to the business, and mistakes are costly.
Also, every company should be born from day 0 with a simple ERP system. Pro tip: you can ask your accountant to fill it in for you 😉
Early Traction: <$1M ARR → Controller
There are three kinds of CEOs when startups graduate to the next level (have a working product, more customers than the founders can handle themselves, 10+ employees, relies on cash flow to pay salaries or a part of it):
- Some early-stage CEOs do a very decent job of keeping their books organized. It just so happens that these CEOs typically prioritize pressing operational needs (a sales rep, a developer, etc.), instead of hiring someone to take care of the company’s finances. When this happens, the company ends up having a part-time CEO and a part-time controller. It is a lose-lose scenario.
- There are some CEOs who are bad or very bad at bookkeeping with consistency but still think they can do it for a while more. They’ll remain insistent (not to say stubborn) until a tipping-point event happens: they lose a dream investor because their books are a mess, company misses payments and pays fees, suffer from burnout-like fatigue, etc.
- And there are the CEOs that from the start realize they’re either bad at performing bookkeeping tasks, and the CEOs that despite being capable want to get rid of these attributes asap.
Of course, #3 is preferred. #1 CEOs are doomed for being too competent at a task they shouldn’t. They typically take a long time to turn into #2 (only if the company’s complexity outgrows their competence) or #3 (enlightenment!).
At this stage, a startup doesn’t need a CFO. It needs a darn good Controller. He/she shall:
- Manage all responsibilities related to bookkeeping, accounting, and taxation, effectively assuming the day-to-day work in the finance department
- Professionalize the finance department by setting up and improving tools and processes
- Assist with financial modeling and budgeting, including the creation, adjustment, and fine-tuning of these models and plans according to the founders’ input in charge of Finance.
- Take care of monthly reporting to investors and getting the agreed-upon numbers together to be presented to the whole company
The job of creating fundraising decks, long-term modeling, assessing company efficiency, and calling the shots is the CEO’s job. If you’ve found a controller that can help you with that, great!! But don’t expect this to get done on autopilot.
A genius talent fresh out of college might get some of these tasks half-assedly done, but hiring someone who’s worked at a well-run company that is 4-10x your company’s size is gold! This person (assuming you’ve hired the right person) will hit the ground running, knowing what you suck at and instantly applying a tested playbook.
Meaningful Traction: $2M-5M ARR → Finance Leader
That’s the stage when your finance department is taking shape (or should be!).
This person can deal with various processes, hire and delegate, measure her/his department’s efficiency, and benchmark with other companies.
I’ll call this person the Finance Leader. It’s up to you and her/him to define if the title is going to be coordinator/manager/lead/whatever.
Just don’t waste the VP or CFO title until this person has demonstrated to have CFO-level skills, and you reach a point where the company actually needs a fully-fledged CFO.
Grown-Up Traction: +$5M ARR → CFO
On top of being able to run a complex machine such as the finance department and its operational/tactical attributes, now is the time to expect strategic support from this leader. It’s CFO time!
- Serious budgeting skills (the CEO and founders provide inputs but the CFO owns this responsibility)
- Risk management
- Proper investor relations (the CEO mostly does the talk, all the rest is taken care of by the CFO and her/his team)
- Strategic decision making
- Operational efficiency
- Regulatory Compliance
Hope it helps!