Entrepreneurial Fashion: How To Wear The Start-up Cfo Hat

You are the captain of your business

You are the captain of your business. Did you sign up to be the finance chief too? Are you qualified to lead the finance functions?

Your entrepreneurial spirit led you through the business planning process. The launch was successful and you are starting to generate a sustainable level of revenue. You are faced with the challenge of wearing many hats as an entrepreneur including the beret of chief financial officer (CFO). Are you up to the task of effectively directing your fledgling company finances? Here are some critical functions every finance chief must master.

Financial data management and reporting: Effective financial management starts with organized data. The successful chief financial officer has a stable record management system either off the shelf or customized to meet specific company needs. Every other function in the CFO arena is dependent upon the ability to make decisions from reliable financial data. There are many excellent accounting and bookkeeping firms that can be engaged to do the heavy lifting of financial record keeping and reporting.

Financial forecasting: The CFO uses organized financial data to make a business map for the succeeding year or for an extended period. The financial forecast is the source document for all business decisions. The entrepreneur can make decisions with confidence and the comfort that the financial forecast guides them toward their entrepreneurial purpose.

Capital markets monitoring: The financial forecast is impacted by external variables beyond the control of the start-up chief financial officer. The CFO must monitor the changing conditions of the capital markets including liquidity and the cost of capital. The business financial plan is a living breathing document that flexes with changes in capital market conditions.

Financial stakeholder relationship management: The entrepreneur as CFO must proactively manage relationships with debt and equity stakeholders. The lenders that supply debt capital are a critical resource for most companies and the professional ties must be nurtured. The payoff from years of relationship building is a steady and reliable source of funds especially during economic and banking crises. Equity partners require a slightly different management touch but require much of the same financial reporting as lenders. The entrepreneurial company relies heavily on equity capital to finance growth plans. The entrepreneur as CFO may organize and execute road shows to spread the company story to sources of equity capital.

Debt management: The CFO is responsible for managing the portfolio of loans and other debt. Use a comprehensive reporting system to summarize the key loan terms which can be accessed by other management team members and outside stakeholders. Consider implementing a secure on-line document storage system with bookmarking and highlighting capabilities to quickly locate key terms in loan agreements. Other critical tasks include floating rate management, debt maturity laddering and covenant compliance monitoring.

Investment analysis: Business capital is a finite resource. There is only so much to deploy for strategic growth opportunities. The entrepreneurial chief financial officer will have the skill set to analyze capital investment data and make informed decisions. An early stage entrepreneur must have the talent for financial modeling or hire outside analytical help. There is no substitute for preparing a thorough investment analysis including a pro forma return on investment (ROI) calculation. This data can be supplemented with a multi-year cash flow projection and distribution waterfall. You will be able to see the annual cash sources and uses over the investment lifetime and estimate how debt and equity stakeholders will get paid.

The entrepreneur who also wears the CFO hat must be an excellent financial data manager, forecaster, capital markets guru, stakeholder relationship facilitator, debt manager and investment analyst. Are you up to the task as an entrepreneur? Get help from a qualified executive coach or management consultant if needed.

by: Michael Shelton

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