When Should a Startup hire a CFO vs Financial Controller?
When a startup reaches a particular stage of growth, maturity, revenue or is raising a Series A funding from VC or institutional investors, the founders and executive team will need help managing the company’s financials and driving the business forward to the next milestone of success. They will need a professional whose primary responsibility is financial planning and analysis, someone aside from a bookkeeper or accountant.
Many business decisions have a financial impact on your company. Financial duties such as managing cash flow, tracking revenue, filing taxes, handling accounts payable and receivables, administering payroll and overseeing employee reimbursements are essential to your business.
When a company is first starting out, it is relatively easy for the startup founders or small business owners to handle these various tasks, it can become increasingly more complex as the business expands. As well as it can become a distraction to the company founders, who should be focusing on more important revenue-generating and business development activities.
So, how are you staying on top of your company’s finances today? What kind of financial management support do you need at what point in the business lifecycle? If you’ve outgrown the do-it-yourself approach, and feel the need for more support than a bookkeeper or accountant can provide, you may be considering hiring a financial controller or cfo for your business.
A spending management platform Ramp, wrote an interesting article that discusses the two different financial leadership roles, (CFO vs Controller), and how at many companies they do work closely together, with some crossover, but they have distinctly different positions with a financial management team.
Therefore, it’s critical that you know the difference between a CFO vs controller so you can determine whether it’s time to hire one, the other, or both.
This article will cover:
- What is a Financial Controller
- What is a CFO
- When to hire a CFO or Controller
- The differences between the two roles
- What are the reasons for hiring a Controller or CFO
What is a Financial Controller?
A financial controller is a senior-level executive charged with overseeing all of the business’ accounting activities, and ensuring that money flows in and out of the business smoothly and legally. If there is a CFO or an accounting officer currently overseeing the company’s finances, the controller reports to them in addition to managing payroll processing, financial reporting (profit & loss/income statement, balance sheet and cash flow statement), and assisting in building operational budgets. They may also be responsible for managing other business-wide issues, including IT, human resources, insurance, sales tax reporting, and federal income tax reporting, among others.
In the past, a financial controller was a manager charged with running a company’s bookkeeping and accounting. That said, the scope of a financial controller’s responsibilities have continued to grow and expand as the role has evolved. It’s still important that they are analyzing the numbers and intimately familiar with the company ledger, but these days, they play a much larger part in influencing the company’s financial trajectory. This includes:
- Compliance audits
- Monitoring internal controls
- Participating in the budgeting process
- Analyzing financial data
- Creating financial reports
- Maintain all bank accounts and cash balances
- Developing financial policies and processes
Depending on the size of the business, there can be plenty of overlap between a controller and CFO. For larger companies, the controller reports directly to the CFO. In terms of the company’s hierarchy, they’re typically on even par with finance directors and accounting managers.
A controller’s foremost duty is to ensure that financial accounting and reporting is accurate. As the head of the accounting department, they’re focused on company compliance. Because of this, Business Insider notes that a “controller role is a natural progression from accountant; however, CFO is not necessarily a natural progression from controller.”
When to hire a Financial Controller?
Congrats! Your startup just raised your Series B 🙂 You hustled to find Product/Market fit in your Seed Stage, then came market penetration and growth in your Series A funding. Now you’re thinking about scaling up and hiring a ton of people. Make sure that you hire the right people: those that are crucial to working on or improving your company’s product or services. The startup CPA firm Kruze Consulting suggests “90% of the time you really don’t need to hire in-house accountants, but I have seen exceptions.”
Some signs that you may need a controller are:
- You are experiencing rapid growth—and therefore have complicated finances.
- Your annual revenue is between $500,000 and $1 million. At that revenue level you are required to keep accounting records according to Generally Accepted Accounting Principles (GAAP), and so would benefit from hiring someone who can offer advice as well as take care of historical financial records.
Most businesses will benefit from hiring a part-time or outsourced controller when they reach the $1M revenue mark. The vast majority of businesses will have an in-house controller by the time they’re earning $10M. For businesses between $1-10M, an in-house controller would likely play a dual role of quasi CFO and bookkeeper supervisor. After the business scales past $10M annual revenue, their time is mostly consumed with generating financial reports, managing internal controls, and supervising the accounting department. However, if you are a small business owner, this role will be someone who can do multiple jobs within your financial operations.
What is a CFO?
A Chief Financial Officer (CFO) is a strategic financial leader tasked with oversight of all the business’ financial obligations, including forecasting, planning, and analysis. The CFO supervises the FP&A team (which the controller is a part of). The CFO’s duties include financial planning and tracking cash flow as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions. If the company is a venture backed startup, the CFO may help with preparing 409A valuations, Cap Table Management, and leading the due diligence process.
CFOs are senior managers in charge of overseeing the company’s finances and financial activities. Some of their main tasks include:
- Financial risk management
- Financial planning
- Financial reporting
- Record keeping
- Data analysis
- Check signing
- Financial Modeling
- Provide C-level advice to CEO and Boards
The CFO responsibilities include a broad range of financial-related business operations. They typically report to the CEO of the company, the board of directors, and act as the chief financial spokesperson. As an intermediary between management and operations, the CFO will also coordinate with the chief operating officer (COO) to identify significant business risks and opportunities. Together, they can make the proper decision, steering the company down the optimal path for growth.
While a CFO is the primary person in charge of a company’s financials, the role goes far beyond that. They must also review financial statements, then analyze that data to discover new ways to drive performance. Sometimes, they’ll have to take the lead in finding creative avenues for funding the business’ activities. In addition to strategic planning, CFO responsibilities include overall financial strategy, preparing financial projections, scenario modeling, comparing actuals vs. budget, reporting and presenting financials to the board/investors, and more.
When to hire a CFO?
As your startup company grows and scales, you may find your controller does not have adequate business experience to advise on growth strategies. If you still don’t have enough work for a full-time CFO, consider working with a contract or a part-time outsourced CFO instead. Part-time CFO solutions offer many of the benefits you would expect from an in-house CFO, but on an as-needed basis that suits early-stage startups. Last month I wrote an article about this subject on when to hire a CFO for your startup, and what you should look for in the role.
According to an article in Driven Insights, they estimate that most small companies won’t need the services of a CFO until annual revenue reaches at least a $1M threshold. Even for companies who make that much would likely depend on a fractional part-time CFO or outsource their CFO services. And investor-venture backed companies with more sophisticated needs may hire an in-house CFO at around the $30M mark.
What are the Differences Between the Two Roles
Although there is quite a bit of crossover between the two roles, especially for smaller companies, the larger the business gets, the more distinct the jobs become from one another. For a fast growing organization, the most significant differentiating factors between CFOs and controllers include:
- The responsibilities of the job roles
- Daily tasks
- Hierarchy and compensation
The responsibilities of the job roles
A CFO acts as the company’s financial strategist. They are the big picture player, leveraging past financial statements with current projections to make calculated business decisions and investments. Such actions have one goal in mind—to drive the company forward. A substantial part of a CFO’s job involves identifying the business’ risks and then taking the proper actions to mitigate those risks. In addition to providing the business with its forward momentum, they also advise key stakeholders about the critical company decisions.
As a real world example, if we look at a recent press release from XL Fleet Corp, that just announced the hiring of a new CFO, Cielo M. Hernandez. It states that she will oversee the company’s financial organization, including financial reporting, financial planning, internal controls, as well as treasury. Hernandez’s extensive experience and capability will also contribute to strategic planning, M&A, and investor relations. In the release the CEO stated “Cielo is a high-caliber finance executive whose extensive experience driving growth, operational improvements and functional excellence positions her very well to lead XL Fleet’s finance organization and deliver significant value to our stakeholders.”
Conversely, a controller is responsible for tending to the business’ financial minutiae, implementing daily accounting tactics necessary to improve the accounting department. By optimizing accounting procedures, the controller helps improve the company’s profitability, particularly when it comes to tracking business expenses. Other duties include overseeing tax compliance, and the financial system infrastructure. When the job is done correctly, the controller supports the CFO, helping them carry out their strategic goals.
The Ramp article points out that on day-to-day basis, a CFO has five primary responsibilities:
- Management – Supervising all accounting and finance department operations and implementing accounting procedures, processes, and policies.
- Transactions – Ensuring payroll and accounts payable and receivable are up-to-date, accurate, and paid on time.
- Financial strategy and forecasting – Reviewing and analyzing the company’s past and present financial records, making decisions to improve inefficiencies or allocate funds towards strategic investments.
- Treasury – Overseeing the company’s capital status, then determining the best options for investing the money or dealing with debt and equity.
- Reporting – Ensuring that financial reporting is accurate and on time. Financial analysis can help guide management decisions.
Similarly, a controller supports—and reports directly to—the CFO. Their primary responsibilities include similar areas of management, transactions, and reviewing financial reports. In addition, they’re responsible for monitoring debt and compliance.
To be a controller, a candidate needs the ability to control a ledger, manage accountants, and understand tax and reporting issues. But it goes far beyond being a simple number cruncher. A controller needs to be a self-starter, organized, and able to convince the rest of the company to abide by the policies and procedures.
Hierarchy and Compensation
As mentioned, the CFO is higher up on a company’s structure than the controller. They’re in charge of managing the company’s larger fiscal direction. The controller is the executive in charge of managing the accounting department. If a company’s finances were a ship, the CFO would be the captain, and the controller, the quartermaster.
Because a CFO is higher up in terms of a company’s overall hierarchy—compared to a controller—the pay is better. According to Strategic CFO: “because the CFO has more responsibilities assigned to the job, the pay is also better as well. The average maximum salary for a financial controller is $126,373 while the average maximum salary for a Chief Financial Officer is $237,051.”
Reasons to Hire a CFO or a Controller
Depending on your company’s financial size, specific needs, and future plans, you may need to hire an in-house CFO, a controller, or outsource your CFO advisory needs.
Generally a corporation hires a CFO for:
- Oversight of the finance team
- Financial strategy and guidance
- Reporting to stakeholders
- Analyzing financial metrics
And generally, a company hires a controller for:
- Bookkeeping supervision
- Improved financial reporting speed and accuracy
- Improved month’s end close
- Reduction of errors, fraud, or security breaches
- Optimized CPA support
- Greater ownership over accounting processes
Most startups at the seed or Series A stage don’t have enough tasks to require 40+ hours of work from a full-time CFO each week. The major issue here is that companies who hire a CFO too early end up paying someone a full-time, CFO-level salary to carry out tasks that aren’t CFO-level, and should be carried out by another role. Additionally, a CFO typically isn’t involved in everyday accounting duties, data entry, supervision of bookkeeping staff, etc. CFOs are business advisors and contribute to the fundraising process, but don’t don’t oversee day-to-day financial data.
So for early stage startups that don’t need a full-time CFO just yet, a more affordable option is to find an experienced outsourced CFO consultant that can deliver strategic guidance and financial insights on a part-time on demand basis.
Huckabee CPA is a full-service accounting and management consulting firm that can handle your startup’s part-time CFO needs as well as the bookkeeping and accounting functions for startups and small businesses. Have questions, feel free to reach out, and request a free consultation.