Full-Time vs. Fractional CFO: What Seed-Stage Startups Need

Startups are frequently working without a lot of cash and have their priorities set on product development and acquiring new customers. Consequently, most seed-stage principals will use an accountant or manage their own finances, however, this is a very lean approach and can lead to gaps in financial strategy development. Small businesses experience cash constraints; therefore, finding the best way to access capital can be challenging overall. Based on the observations of one finance expert, many young companies have only used basic accounting for the majority of their operational life, and as such, as complex financial issues arise, they will require assistance to fill a void on the financial management side of the business (when determining sales forecasts or the viability of entering a new market).

Since startups at the seed stage may not be able to fundamentally afford (or deem it necessary) to hire a full-time Chief Financial Officer but do need the business acumen of an experienced CFO, they could elect to outsource the CFO’s function as a fractional controller or outsourced CFO. Fractional CFOs provide veteran level financial management resources to multiple organizations, on an “as needed” basis, and most importantly, do so in a manner significantly less than the amount, required versus hiring a full-time CFO. In doing so, fractional CFOs can integrate with a startup’s team, therefore aiding in the launch of the financial infrastructure with a limited commitment of time.

When to Hire a Full-Time CFO

However, there is also a time for employing a full-time CFO instead of continuing to employ a fractional CFO as the startup grows to the later (mid to late) stages of growth. Once the startup has attained its Series B round of financing and beyond, it typically will have hundreds of employees, a global presence/complex operation and will have to comply with most complex regulations. Therefore, from that point on, the company needs a full-time CFO to assure that there is sufficient oversight in place to monitor and ensure that the company continues to operate in accordance with its long-term strategic initiatives. The turning point is when the startup outgrows its requirement for less than full-time oversight and needs someone to oversee its financials full-time on a dedicated basis. Many startups will transition from using fractional CFO services to having a full time CFO on staff some time after being financed by Series A or through Series B – once the cost is justified by the company’s revenue and complexity of its growth.

Until there is such an option available, start-up companies can take advantage of the fact that there are many qualified, experienced fractional or outsourced CFOs whose services can act as a bridge to the day when the startup can afford to hire a full-time, in-house CFO. Fractional CFOs can provide on-demand, expert-level financial management services that an early-stage startup requires to develop from stages of an idea to the establishment phase of a new business.

By providing valuable knowledge around operational budgets, financial forecasts, and key performance indicators, fractional CFOs will also help manage a start-up through the fundraising process, which will include developing the company’s financial model and presentation materials to potential investors, thereby allowing the early-stage startup to avoid the burden of a full-time six-figure C suite salary until revenues from customers start generating positive cash flow.

In summary, a part-time or fractional CFO generally have the greatest value to a new business at the seed stage, while a full-time CFO is generally reserved for the later stages of the company’s development.

Key Takeaways

Most start-ups do not have any internal finance expertise: Most early-stage companies operate on a shoestring budget and typically do not hire any full-time CFOs for their business.

Fractional CFO’s provide significant benefit to start-ups: A fractional CFO can deliver expert-level financial management services, which may also include designing and implementing an accounting system, obtaining financing, and providing strategic guidance on a less than full-time basis.

Investors are more likely to invest in start-ups that will have strong financial leadership: Having strong finance leadership systems in place will yield benefits to all start-ups, regardless of size or stage of development. To verify that the startup company’s finances can earn the trust of its potential investors, it will likely have a fractional CFO helping to demonstrate the financial management skills of the startup company.

Continue evaluating your need for a permanent full-time CFO based on the growth and financing of your startup. Until you reach that point, using outsourced CFO services is a flexible way to get access to the financial expertise your startup needs without having to make a long-term commitment to hiring an employee.

In summary, in most cases seed-stage startups should not need to hire a permanent full-time CFO immediately. Instead, using either a fractional CFO or outsourced CFO will provide the necessary level of financial leadership during the startup’s early stages while providing high-quality service and preserving capital as much as possible. Once the startup has achieved a stable rate of growth and obtained larger amounts of financing, then it can evaluate the need for a permanent full-time CFO.

FAQ

1.What type of CFO services can ERB offer a seed-stage startup?
ERB provides outsourced CFO services including financial planning, budgeting, forecasting, investor reporting, and strategic financial guidance tailored to early-stage companies.

2.Does ERB provide a fractional or part-time CFO?
Yes. ERB offers experienced CFOs on a fractional or interim basis, giving startups executive-level expertise without the cost of a full-time hire.

3.How does ERB help with financial planning and fundraising?
ERB prepares investor-ready financial models, forecasts, and reports, and supports startups through fundraising and due diligence processes.

4.What industries or types of companies does ERB serve?
ERB primarily supports technology-driven startups such as fintech, cybersecurity, AI, and biotech, serving companies in Israel, the US, the UK, and globally.

5.Why should I choose ERB for outsourced CFO services?
With over 27 years of experience, ERB delivers scalable, cost-effective financial leadership that grows with your startup