Promising start-ups and scale-ups generally employ very clever technical people, buzzing with ideas and ambition. A biotech start-up will have profound knowledge of developing innovative medicines, for example, but how does it fully secure funding for its research & development? That’s where a fractional CFO comes in. He or she can help you to ensure you have the money you need when you need it, and without breaking the bank.
Money is always an issue for any start-up or scale-up. Even if you have just managed to successfully raise funding for your research & development (R&D), you are very likely to need another investment round in the next 18 to 24 months. Some companies will try to raise funds themselves, but if you think big and want to be truly successful you will definitely benefit from a Chief Financial Officer (CFO).
Any business needs a sound financial ecosystem, including accounting, planning and control, and capital advisory. As my colleague Aine explained in her blog, you need bookkeeping, reporting, payments and payroll functions from an early stage. By the time you need more venture capital, that’s when you really need a CFO on board to help you raise funds and deal with investors. The danger is that without a CFO you will not have the money you need, no structure, and no future because you can’t do the fundamental research & development work that is required. In many cases, investors will also urge you to get the right people for mainly R&D on board and outsource the rest.
Hiring a part-time CFO will easily cost you 100K plus a year, which is generally not a realistic option, but a fractional CFO can provide the help you need quite literally at a fraction of the cost. A fractional CFO, or CFO-for-a-day, is essential to raise capital. A seasoned, fractional CFO, engaged for fundraising, can take smart and strategic decisions between raising non-dilutive and dilutive funding, balancing capital expenses against risks.
Once funding has been raised, a part-time CFO might function more as a controller, occupied with management reporting, setting milestones, and forecasting for research & developments programs over the coming five years. In practice, I see that many of our clients underspend, as there are often delays or third parties that are unable to perform research & development work in the expected timeframe, changing their budget forecast. This can really occupy a part-time CFO, while this type of work can easily be carried out by the Planning & Control department with a fractional CFO concentrating on fundraising tasks. In this way, the right work is performed by the right people, which leads to a higher level of output at lower costs.
Remember, what you really need a CFO for is fundraising and investor relations, but management reporting, setting milestones, and forecasting are equally important. Combining all of these different aspects in one person is very hard, as they require different kinds of expertise. It would be far more sensible to combine all of those functions with one service provider, a one-stop-shop if you like, as an extended part of your team that can perform accounting, planning, and control, and use a fractional CFO if and when you need one. Outsourcing to the right party will bring you a lot of knowledge and expertise, sometimes even at a fraction of the cost of a part-time CFO.
At F.INSTITUTE, we are always happy to support and guide you in your growth path to success, by bringing in exactly the right people with the right expertise at the right time. Reach out for any help or advice you may need by contacting me or one of my colleagues.