The CFO seat at an early stage company

The month end close at an early stage company is often one person with a spreadsheet, a bank feed and a list of questions nobody else wants to answer. That person may carry the title of Chief Financial Officer, or may be the founder doing it at night, or may be a fractional finance chief working two days a week. The seat exists whether or not anyone is sitting in it. This article describes what the seat actually owns, written for founders deciding whether to fill it and for operators who work beside it.

I hold this seat at more than one company, sometimes on a fractional basis, and the description below is the version of the job I have found survives contact with a company that has no finance department yet.

The books and the controls

The first responsibility is that the financial statements are true. That means a chart of accounts that fits the business, a monthly close that reconciles every balance sheet account to a source, revenue recognized under a written policy, and expenses recorded in the period they belong to. At an early stage the accounting itself may be outsourced to a bookkeeper or a firm. The seat still owns the result, because the seat is who signs the numbers that go to the board and to the owners.

Controls at this stage are small and specific. Two people involved in any payment above a threshold. Bank statements reconciled by someone other than the person who initiates payments. A written policy for expenses, for equity grants and for related party transactions. None of that requires a department. All of it requires someone to decide it exists.

Cash, runway and the banking layer

The second responsibility is cash. The seat maintains a rolling forecast, usually thirteen weeks in detail and a longer horizon in less detail, and it knows the runway to the week. It owns the banking relationships, the accounts, the signatories, the treasury arrangement for any cash the company is not spending this quarter, and the payment rails the company uses to pay people and to receive money.

Treasury at an early stage company is often treated as plumbing. I treat it as part of investor relations, because the way cash is held and moved is one of the things an owner is judging. An owner who asks where the proceeds of the last round are held deserves a precise answer, and the seat is who gives it.

Reporting to the board and to the owners

The third responsibility is reporting. The board receives a package each month or each quarter: the statements, the forecast against the last forecast, the cash position, and a short narrative of what changed and why. The owners receive the update on the cadence the company promised, and the seat is who reconciles that update to the statements line by line before it goes out.

When the same person holds the finance seat and the investor relations seat, the translation layer between numbers and narrative disappears, which removes the place most investor confusion is created. It also removes a check, and the person holding both seats has to put one back on purpose, usually by having the board’s finance lead or an outside accountant read the update against the numbers before it ships.

Capital planning and the next round

The fourth responsibility is knowing what the company can afford to promise. That includes the capitalization table, the option pool, the terms of every instrument outstanding, and the model of what the next round would look like at several prices. When the founders begin to discuss a raise, the seat already knows the dilution, the runway the round would buy, and the covenants or preferences that would attach.

The seat also owns the financial sections of any offering materials: the statements, the use of proceeds, the capitalization table exhibit, and the projections if any are included. Projections in private placement materials are a matter of real care, because a forward looking statement to a prospective purchaser carries consequences. My practice is to include only what the company can defend line by line and to state the assumptions beside the numbers.

Compliance and the calendar

The fifth responsibility is the calendar of obligations. Tax filings and estimated payments. Payroll tax deposits. State registrations. Form D and state notice filings after a raise. Annual reports to the state of formation. Tax documents to owners on the schedule the instrument requires. Insurance renewals. Any covenant reporting a lender requires. Each of these has a date, a penalty for missing it, and a tendency to be nobody’s job until it is missed.

I keep this as a literal calendar with an owner for each line, reviewed monthly. It is the least interesting document in the company and the one whose absence causes the most avoidable damage.

What the seat looks like week to week

A typical week in the seat at a company with no finance department has a rhythm. Monday is cash: the bank balances, the payments due, the receivables expected, and the forecast rolled forward one week. Tuesday and Wednesday are the books: transactions coded, questions sent to whoever spent the money, reconciliations progressed toward the month end close. Thursday is the outward facing work: a board question answered, an investor question answered in writing, a lender report sent. Friday is the calendar review and whatever the founders need modeled before the following week. Month end adds the close itself, the board package and the variance narrative. Quarter end adds the owner update and the reconciliation pass on it. A fractional seat compresses that rhythm into the days it has, which is why the scope has to be written down: a fractional finance chief who is present on Tuesday and Thursday needs the founders to know that Monday’s cash question waits until Tuesday, or to have delegated it to someone who can answer it.

What fractional means and when it works

A fractional finance chief holds the seat for part of a week or part of a year. It works when the scope is genuinely bounded: a company that needs the close, the forecast, the board package and the raise preparation, and does not yet need someone in the building every day. It fails when the word fractional is doing the work of a decision nobody made about the role, so that the person is expected to be present for everything and paid for a fraction.

The test I apply is whether the company can write down what the seat owns and when. If it can, fractional works. If the answer is everything, when needed, the company needs the full seat and should say so.

The honest limit

The finance seat at an early stage company is a judgment role with clerical foundations, and the clerical part cannot be skipped. No forecast is credible on unreconciled books, no board package is useful if the numbers change after it is sent, and no raise runs smoothly on a capitalization table nobody has checked. The trade accepted in this seat is that the foundations consume time the company would rather spend on growth, and the return arrives later, in a diligence process that takes two weeks instead of two months.

The seat does not say no. It says what a decision costs, in cash and in runway, and lets the founders decide with that in front of them.

Educational content only. Not legal, tax, or investment advice, and not an offer to sell or a solicitation of an offer to buy any security.