Brands need expert financial guidance and cost-effective bookkeeping as they start to hit a high-growth velocity. However, finding one person for both tasks is near impossible, and an early-stage business rarely has the time or attention to spare on high-quality financial analysis.
Put simply, finding the right outsourced CFO can be vital to your company’s ability to scale.
Access to on-demand financial insights across siloed team operations will not only improve your understanding of core business fundamentals, but will also yield insights into adjacent verticals like subscription pricing, brick and mortar expansion, and 3PL management.
At Merchant Candy, we advise brands to leverage a best-in-class fractional CFO partner to ensure that financial data is in sync and receivables are fully tracked. In turn, you’ll ensure that the hygiene of your company’s expenses, payments, and accounting is properly taken care of.
We chatted with Burlap & Barrel co-founder Ori Zohar about his search process for an outsourced CFO firm and distilled his most actionable advice into two critical steps.
When determining the best outsourced CFO for your growing brand, the first step involves ensuring specific needs and deliverables before diving into the search process.
The majority of early-stage financial tasks, according to Zohar, can be taken care of by less senior (and lower-cost) financial experts like bookkeepers, accountants, and controllers.
Up until the point that your brand is nearing the $1M+ annual revenue metric, it’s unlikely that you’ll need a dedicated outsourced CFO. In turn, you can likely get the support you need from an accountant or bookkeeper, or find a financially-minded friend that’s willing to sit down with you and your team for an hour or two every few months for a workshopping session.
An additional way to ensure you have the tactical support you need is to bring on a financial expert, or a CFO directly, as an advisor to your company in exchange for a small equity stake.
In the case that you’ve passed the $1M+ annual revenue mark, and you realize the need to bring on a dedicated outsourced CFO firm, it’s critical that you scope out the specific deliverables and tasks that you need to get done. This framework and project outline will help inform and streamline the decision once you move into the search process of interviewing firms.
On this topic, we spoke to Finn and Grummies co-founder Colin Darretta about his experience with outsourced CFO firms. Darretta points out that the core deliverables needed from a CFO type role include managing core financial metrics, managing cash flow projections, building and managing financial models, and negotiating credit terms with vendors.
Once you’ve scoped out key deliverables and ensured your team’s need for an outsourced CFO firm, the next step is ensuring that the firm is only working on high-value action items.
In our conversation with Zohar, he notes that outsourced CFO shops will often include a range of analytics proposals and add-ons that simply aren’t needed at the earliest stages. These add-on services span inventory controls, subscription pricing analysis, partnership management, and M&A support through the process of a potential liquidation event, to name just a few.
To Zohar’s point, while business analytics deliverables can be really helpful for a venture-backed business with numerous stakeholders, they’re often overkill for an early-stage brand like Burlap & Barrel. As a result, it’s critical that you ensure your outsourced CFO is only working on the most valuable financial questions in the form of deliverables.
It’s equally important to ensure that your outsourced CFO partner is engaged only as often as you need their support, which typically shouldn’t be more than once per quarter, depending on the complexity of your business.
If this scope isn’t determined early on, you’ll likely run up hourly expenses at an unsustainable rate which can yield an additional cost center that you will need to address down the line.