When to hire a CFO

A CFO hired too early can be expensive and even run the risk of the candidate getting bored and leaving. And a CFO hired too late can be the reason a Series A doesn’t happen.

Where a CFO truly earns their salary is when a round is coming and the business has enough complexity to keep them busy between raises.

Before that, the right hire is more likely a Head of Finance or an FD, with a fractional CFO for the raise if you need one. The title matters less than the job though.

What needs to be decided is whether you need someone who can own strategy and sit across from an investor as a peer - or someone who can build a model and keep the books straight, because those are different people with different salaries.

So this guide is about pinning down that inflection point, written for consumer businesses around Series A and their run up to it.

What a CFO actually does

Strip away the title and a CFO at an early-stage business does four things you probably wouldn’t get with a Head of Finance.

1. They lead the raise: They can help build the story, manage the data room, handle term sheet negotiation and importantly, know what terms to push back on.

2. They own the capital structure: traditional debt vs revenue-based financing or convertible notes vs straight equity. If you’re a consumer business with inventory, then the difference can avoid raising dilutive money when you don’t need to.

3. They talk to the board as an equal: A Head of Finance can present the numbers competently but a good CFO will explain what the numbers mean and make a plan off the back of them.

4. They think about the exit from day one: map out potential acquirers, decide what metrics matter most, and plan how to achieve the number you want to sell at.

If you don’t have those four problems yet then you probably don’t need a CFO.

The triggers

Four situations where a CFO hire pays for itself:

1. The founder has no finance background and is raising a large round. If you’re a brand or product person raising £3m or more, the gap between you and a finance-literate investor might need bridging.

2. Stock-heavy model with working capital needs. If you’re buying inventory on lengthy lead times, someone needs to be thinking about financing those periods.

3. Multiple revenue lines or channels. You may have DTC, retail, marketplace, subscription which means four sets of economics. A Head of Finance can report on them whereas a CFO will look at the data and make an informed decision on which to grow.

4. An exit or a strategic conversation is live. If an acquirer or a strategic investor is circling, you ideally want someone who’s experienced enough to have gone through an acquisition and knows the process.

It’s important to strike the balance, and hire what’s right for your stage rather than a great CV - I know this from my founder’s side. For example, a finance leader from a large business that you aspire to be, can be excellent at what they do there but totally wrong for a startup. It’s an easy mistake to make when a candidate looks great on paper and comes across well and it’s why personality fit carries so much weight in my scorecard.

I’ve even seen it where an important investor proposed a candidate who looked good on paper, but simply wasn’t right for you and your company culture. And pushing back on their suggestion mid-raise when they’re holding their cheque book is a very hard conversation.

If you’re in that position, I’d be happy to help you think it through, whether or not it turns into a search.

When a Head of Finance is enough

If the honest list of what you need is a model, a board pack, clean books and a data room then that’s a Head of Finance - and there’s no point paying £40k+ a year more for a CFO who’ll likely leave if there isn’t enough strategic work. I’ve written about that first hire separately.

Full-time or fractional

For most of the triggers above however, a fractional CFO one or two days a week is worth considering before a full-time hire - especially if the raise, capital structure work and board conversations are lumpy. The fractional guide goes through where I think it works and not.

What it costs

From my startup CFO salary benchmarks:

Full-time at seed is £80k to £120k rising to £120k to £160k at Series A, plus equity of 0.75% to 2% at seed and 0.4% to 1% at Series A.

Fractional runs £500 to £1,200 a day at seed and £700 to £1,500 at Series A, usually with no equity.

Someone who’s led a seed-to-Series-A raise before sits at the top of those ranges - and the experience can be worth paying a premium for.

What good looks like

The best early-stage CFOs are the ones who’ve done the job before, can build the model, run the raise, and are okay that the finance team might be them and a part-time bookkeeper until things take off.

When you get to interviews, the executive interview scorecard covers the right questions to ask.

Common questions

At what size should a company have a CFO?

There’s no fixed size. Suma’s rule of thumb for consumer brands: under £1m revenue with no stock, outsourced bookkeeping plus a fractional CFO; £1m to £5m, or any stock, a full-time Head of Finance with a fractional CFO; above £5m, a full-time finance leader. A full-time CFO pays for itself when a founder without a finance background is raising £3m or more, stock needs financing, there are several sales channels, or an exit conversation is live.

Sources: Suma, Fractional or full-time and When to hire a CFO guides.

What does a startup CFO do?

A startup CFO leads the fundraise, owns the capital structure, talks to the board as an equal and plans for the exit. Day to day that means the financial model, cash and runway, the board pack, investor relations and unit economics by channel. At a consumer brand it also means financing stock bought on long lead times. Before a Series A, much of this is often covered by a Head of Finance, with a fractional CFO brought in for the raise.

Sources: Suma, When to hire a CFO and Your first finance hire guides.

If you’re not sure which of these you need, that’s what a Senior Hire Review answers.