Executive Summary
The perception of accounting and finance in startups and small to medium enterprises (SMEs) on the African continent has always been that of a “back-office; non-value add” department or function. The same skill-set in the US or in Western European countries are priced at a premium, but highly qualified accountants on the continent don’t make anywhere near enough money as their US or European counterparts. Due to this perception gap, the importance of the Chief Financial Officer has also been minimized among SMEs on the continent. In this article, I will demystify the role of the Chief Financial Officer and speak to its importance to the sustainability and longevity of African SMEs and startups.
The Need
Depending on the industry you are in, you might at one point or another in your company’s growth cycle need to obtain external capital – in the form of debt or equity funding, to further your company’s goals. If you’re going down the debt funding path, any bank or individual loaner will want to see an amazing balance sheet where not only assets > liabilities, but also key liquidity ratios, as well as quality management accounts being produced on a monthly basis which match your bank statements. Although a good accountant can provide this information, they might not be able to provide the right ratios (example – current ratio), which will be acceptable to a bank loan officer to be able to approve the loan. You might need insights from a Consultant who has previously worked as a CFO to help put this together for your company to improve your chances of getting a loan.
If you’re going down the equity funding route (venture capital or private equity, depending on your company’s growth stage), the need for a CFO becomes even greater. No VC fund will give funds to a company without an experienced CFO on their team because they want to ensure that the company has someone who will ensure efficient expenditure of funds being provided to accomplish the milestones that the company has set out for itself.
If you are able grow your company by bootstrapping, more power to you! As your company was starting, depending on your budget, you may have done the book-keeping yourself, or hired a freelance accountant, or outsourced it to an accounting firm. What often gets missed at this early stage, especially if the founder is not an accounting/finance professional him or herself, is the analytical thinking and recommendations that should come out of data that goes into your accounting system. This can be attributed either to a lack of analytical training to accountants on the continent and/or the perception of the community, that accounting is a back-office function and thus accountants should not be making recommendations to the CEO on key company decisions.
When you don’t have a numbers-driven mindset or have someone on your team who is a numbers powerhouse (aka – a CFO), you might miss out on insights that will eventually lead your company to the next stage of growth. Worst case scenario, you might not be able to manage your cash flow and liabilities, and go bankrupt. In either case, having a CFO on your team is a win-win regardless of the type of company you are (bootstrapped or VC funded).
What does a CFO do?
A CFO is as critical to any management team as the CEO, COO, CMO, and CTO. The key job of a CFO is to ensure compliance across all entities as well as advise the company on key revenue and expense related decisions to ensure sustainability. The CFO also should be able to advise on how the company can increase assets over time while keeping liabilities, which in turn increases shareholder value over the years.
If you’re looking to hire a CFO, here are some must haves on their Job-Description:
I. Budgeting/Financial Forecasting
– Working alongside the CEO and other senior management to understand the business model and create assumptions within a financial forecasting model
– Upon approval of the financial forecast, translate the same to a 1-year and 3-year budget which will serve as the basis of future fundraising and expense management
II. Strengthening Financial Infrastructure
– Undertaking a Gaps Assessment and coming up with a Report of which processes need to be streamlined
– Agreeing and implementing recommendation to be able to meet Investor (and/or Donor) Reporting deadlines on a monthly basis
III. Business as Usual (BAU) Work
1) Overseeing Finance Operations
– Supervise monthly accounting activities including the preparation of monthly, quarterly and annual financial statements and management reports.
– Manage the company’s financial systems, policies and controls including external bookkeeping and accounting vendors.
– Build and maintain rolling financial and cash forecasts.
– Define and streamline the intercompany relationships (if applicable) and reconcile monthly.
– Manage all bookkeeping and accounting resources.
– Establish and monitor internal financial controls.
– Work together with external accounting companies to ensure compliance with tax regulations across all entities and subsidiaries.
– Be able to analyze reports and assist staff with using financial information to improve revenue, cost control and profitability.
2) Investor Reporting
– Be able to submit accurate and timely investor reports on a monthly basis
3) New Funding
– Working closely with the CEO and senior management to better prepare for investors/donors’ demands as well as support with submitting proposals/pitch finance
4) Policy Writing & Enforcement
– Be able to understand gaps and bridge by policy writing and implementation by rallying stakeholders and creating enforcement controls
5) AuditPreparation& Successful Completion
– Able to conduct an internal audit prior to actual financial audit and mitigate any foreseeable issues in entries and documentation
– Oversee a financial audit successfully as well as be able to implement recommendations from the auditors post-audit
But What if I’m a Small Startup and can’t afford a CFO?
If you don’t have the budget to afford a full-time CFO, don’t worry! Even getting a few hours from a CFO per month and providing some internal training to the CEO or Chief Accountant, can be more value-add than not. The goal is not to have a namesake CFO on your team, but rather someone who is actually going to, even in a limited timeframe, be able to add value by providing you with insights from your financial data to make decisions which will ultimately enable your company to scale.
What is a Fractional CFO and Where Can I Get One?
A fractional CFO is a part-time CFO who you can “lease” based on your budget. A fractional CFO is able to, within your allocated budget, work on what you define to be your greatest financial need. It could be any of the following:
– help you with a loan application
– prepare a robust financial model and valuation so you can confidently pitch your company to a VC or PE firm
– improving your profit margins
– increasing revenue
– pricing strategy
– reducing expenses without impacting your service or product
– reducing liabilities
– improving cash flow management
– putting in place policies and procedures that will allow you to get timely management reports and get audits done seamlessly
– and more!
Very few companies provide quality fractional CFOs on the continent. Among them is ProChange Africa, a Kenya based management consulting company, which has branded itself as an Uber for financial services. Their fractional CFOs have aided countless number of companies and organizations to not only get some breathing room in terms of their finances but also scale seamlessly. Check out their website to get in touch with them today if you are in need of a fractional CFO: https://pro-change.co/.
