Why tech founders outsource their CFO services

October 7, 2019 BDO CANADA

Early-stage tech founders sometimes occupy every role in the C-suite. As chief executive officer, they set the mission. As chief operating officer, they oversee all operations. As chief technical officer, they improve the R&D. As chief financial officer (CFO), they manage financing, fundraising, cash and compliance.

How can tech founders fill roles usually executed by multiple individuals? In most cases, they struggle. Even when they do succeed, this finger-in-every-pie stage lasts only as long as the company waddles through its baby steps.

When a tech founder does begin to spread the executive functions among a team, they look at the CFO as one of the first roles to fill. Typically they decide between three options: full-time CFO, independent contractor, outsourced CFO services.

Here are five reasons they often choose to outsource their CFO services.

1. Tech complexity demands high quality

Tech businesses create some of the most complicated operations in the business world. From a CFO's perspective, there are two reasons:

  • Pre-revenue time lag before product launch. Where new businesses in most industries expect to generate revenue from Day 1, the average tech business sees revenue only after months – even years - of prep time. That pre-revenue stage uses capital and R&D to create a product. The selling begins later on. This time lag affects not only the founders but also the investors, who invest cash upfront but may not see a return until later. As a result, the CFO needs to bring a highly strategic approach to a role that cannot be performed simply by the numbers.
  • Operational diversity. Leaders of Canadian tech companies face a slew of business challenges that don't commonly arise in other companies of the same size and stage. The CFO therefore needs to have experience in several areas. An example: tech companies often look beyond Canada's borders from the company's earliest days. They not only find clients outside Canada - they also find talent there to supplement their labour at home. With teams and clients in multiple locations, a tech company's CFO handles tax and compliance in many jurisdictions.

Many tech companies first try to source high-quality CFO talent by using an independent contractor. When they realize the breadth of experience and knowledge involved, they outsource their CFO services to an organization that specializes in CFO services.

2. Talent at the right price

While many tech companies need the quality of a seasoned CFO, they don't require them on a full-time basis. By using outsourced CFO services, they can customize the amount of time their business needs – and therefore also the cost to the business. As the business begins to grow, they can increase their usage.

3. CFO continuity

Tech founders sometimes experience the following scenario: They bring on a high-calibre CFO full-time, despite the significant outlay for salary. However, the new CFO soon finds that the company's challenges don't challenge them sufficiently to justify a full-time role. They become bored and leave the organization altogether.

Outsourced CFO services solve this problem before it starts by providing a top-flight CFO for the growing tech company on a part-time basis – for one or two days, as an example. During the rest of the business week. This allows the CFO to remain highly engaged with the tech founder and their business.

4. Time savings: On-boarding

A tech founder doesn't have time to train a CFO. They need the CFO to know the role without the benefit of on-boarding. Most of all, they need the new CFO to take those responsibilities off the founder's hands quickly – items such as financing, strategy, financial reporting and forecasting, board and investor relations. And they need the CFO to perform the role better than the founder could.

Outsourcing CFO services to a quality provider eliminates the on-boarding time crunch. A top-quality outsourced CFO knows the questions to ask and the possible answers. They join the organization as a partner for the founder or founding team, not as a standard employee. From the start they offer options to the founder and help them make decisions. While they take direction to the extent desired by the founder, leaders of tech companies often prefer to lean on this part-time CFO as the veteran advisor they are.

5. CFO+: Benefits of the wider team

The complexity of a tech company means that even the most talented CFO needs to consult with other advisors in their network. By engaging an outsourced CFO from a full-service organization, a tech founder has access to specialists on topics from domestic sales tax to tax credits for R&D to the latest payroll compliance standards in overseas R&D centres. The outsourced CFO can access them all – often at their same location.

At every stage: The shifting role of an outsourced CFO

Most tech founders launch their business with hope and determination – but no guarantee of success. When they do find that product-market fit, the role of their CFO may change to match the founder's vision. Fundraising strategy adapts to the expectations of venture capital. Cash-flow concerns mature. Through it all, the CFO shifts their role, helping the founder match hope with reality.

Find out how BDO's CFO Services team can help your tech business grow

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