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Start-up founders: Become your own Digital CFO!

The landscape of financial services is changing. Developments in technology are allowing us to obtain services that were previously expensive at more affordable prices. 

Accounting services have undergone a massive digital transformation over the past decade thanks to cloud computing. You no longer have to see your accountant in person to get things done. Another recent innovation in financial services is the transformation into digital CFOs which uses data analytics to track and analyse financial performance.

That’s right, you can now become your own ‘Digital CFO’

What’s a Digital CFO?

A traditional CFO is responsible for the financial oversight of the business. A CFO differs from an accountant in terms of their job scope. An accountant manages the day to day transactions, generates financial reports and ensures a business is compliant with tax regulations. A CFO focuses on the availability of finance, the short-term and long-term cash needs of the business and helping the business owner set and track financial goals.

Simply put - An accountant will tell you how much profit you are making. A CFO will tell you what you need to do to increase your profits.

A digital CFO provides all the same services and insights without the need to hire a CFO.

Yeah, but how can a digital CFO help me?

Well, for starters, being able to visualise your financial performance is a great way to tell how well you are doing at a glance. 

Here’s an example of how you’d make use of CFO style knowledge in your business:

You’ve run your business as a one-person show for two years now. Sales have been steadily increasing and work starts to creep up on you. You feel like you need to hire some staff to help you out. But you can’t figure out if you can afford to do so!

That’s exactly when you need CFO style financial analysis!

You’ll need:

  1. A cash flow forecast to work out how much you will earn and spend in the next 6 to 12 months
  2. A headcount planner that you can put in estimates for staffing costs
  3. A visual chart that shows how much you will lose/make based on your new staffing estimates.

Ok, but CFOs are expensive!

The average annual salary for a CFO in the United States is just under $400,000. That might make sense if you’re a $200 million dollar company looking for a CFO to help manage the finances of your company. How can you hire a CFO when you’re a small business or still in the startup stages? You don’t have access to that kind of capital yet but you need the financial expertise of a CFO. 

That’s when you harness the power of cloud based financial analysis software!

Becoming your own digital CFO

As business founders and entrepreneurs, it’s all about staying up to date with the market and improving your product or service to fill a gap in the market. Financial services are just the same and have seen a digital transformation in recent years. Now, there are tools that help leverage data and turn them into strategic insights using financial modelling and forecasting presented in an accurate, efficient and easy to understand way that can guide better business decisions in a timely manner.  

This doesn’t only improve the day to day operations but it provides insights into long term strategic planning that is necessary when it comes to scaling a business. A digital CFO can provide the relevant information to help founders make the best decisions at the right time. 

There are HEAPS of packages out there that an aspiring entrepreneur can use to make financial decisions. One of the software that I like using for our accounting business is gini! gini isn’t the most sophisticated financial planning software out there, but it excels in simplicity and customisability. 

Digital CFO - short term forecasts

Running a business is tough. You’ve got to juggle client commitments, staff responsibilities and your own workload all at the same time. It’s hard to keep those plates spinning. As a small business owner, your main focus would be on the operations side but according to a study conducted by the US bank- 82% of small businesses fail due to poor cash flow management. You may not always have time to look at the finances or maybe you just don’t want to but understanding your financial position is a fundamental skill every founder must have.

The key is to keep it simple. Use digital CFO software to generate a short-term cash flow forecast for you!

Using short-term cash flow forecasts you get a quick, simple overview of what your income/expenses are going to look like. 

You can then make tweaks as you like to the forecast, such as:

  1. Adjusting the % growth from month to month
  2. Allocating additional wage costs for new staff
  3. Allocating one-off spending (like investing in new equipment or training)

Short-term forecasts give you a good idea of whether you can afford to expand your business in the next 3, 6 or 12 months. 

Digital CFO - working out the cash runway

Think of your business like an aeroplane. 

For an aeroplane to take off, it needs a runway. The bigger the aeroplane, the longer the runway it needs to build up enough speed and momentum for take-off. 

In business terms, your ‘runway’ is not tarmac. It’s cash. The more cash you have, the longer runway you have to take-off. Bigger ideas need longer cash runways. If you are a tech start-up, this will be very important to you.

Using digital CFO software, you can work out what your forecasted expenses are. This includes current operating expenses and additional must-have things like:

  1. Crucial software/hardware
  2. Expert designers/programmers/developers
  3. A boost in  marketing spend

Then this tells you how long your current cash reserves will last you. Not long enough? Well, then that’s why you need: Funding!

Digital CFO - helps get you funded!

It doesn’t matter if you are a tech startup or a regular small business. Funding is a crucial part of getting your business ideas off the ground. Funders can range from banks, to government bodies and venture capitalists. They are all looking for the same thing:

  1. The viability of your business idea
  2. How much funding you need
  3. How much return they can get from funding your business

Digital CFO tools help you make that point by showing:

1. The viability of your business idea

Maintaining good financial records and summarising them in an easy to understand format is good practice. It shows that you are committed to running your business. More importantly, it shows your business performance. 

Broadly speaking, having 12 months worth of financial data is a good place to start. Very few (if any) start-ups receive funding on the basis of a ‘Killer Idea’ alone. You need various financial models and forecasts to back your claims and to show your business can grow and make a return from this funding. 

2. How much funding you need

Using your short term forecasts and cash runway you can calculate how much funding you need. This gives potential funders clarity on what exactly you need to run the business. 

It’s not good enough to say ‘I need about $1,000,000 to start’. You need to justify the funding amount. You also need to have contingency plans available should you not meet that funding target. This is why financial modelling and forecasting is so important. 

3. How much return they can get from your business

This one is subjective. You can forecast demand and sales growth all you like. You can forecast a return on investment for your investors. Ultimately, it boils down to how clearly you communicate your ideas. In that respect, having a well developed set of financial models and forecasts goes a long way in building investor confidence.

If you are looking to borrow from a bank, having good finances will give them a strong assurance. Your business will be able to pay off the loan that you take from them.

Financial systems are important! Especially if you are a startup! 

What now?

If you are serious about growing your business, you need to invest in better financial solutions. Fortunately, these financial tools which were once only available to bigger companies are now affordable. With providers like gini, you too can get access to digital financial services and play with financial data like the big fish!

Sam Harith is an accountant based in New Zealand and runs SH Advisory and blogs at The Comic Accountant.

Cash Flow Forecasting Xero
Ray Wyand, CEO of gini
Why I write content :

It’s time for me to shamelessly ask for your support. Our company is dedicated to the idea that finance should be simple, easy and fair for everyone.

To deliver that, we’ve built a financial tool that helps small businesses to save time, optimise cash flow, and access growth capital. We’ve priced it at $40USD a month to make it accessible for everyone - but I’d appreciate your help getting the word out in your company.

  • For founders we can give  real time insight into the financial health of your company and help them to access growth capital
  • For in house finance teams, we can get you promoted by helping you to automate your most manual processes and helping you  create reports your managers will love
  • For investors, we can help you underwrite better, faster & fairer whilst also helping your portfolio automate their reporting in real time
  • For accountants & book-keepers, we can increase your margins through automation and value added services that help your clients to grow

If you know any of these people - please email me at ray@gini.co

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