Operating CFO is the finance lead who the founder describes when she says, “I need a CFO for my business.”
Post by Aleksey Krylov Photo by NORTHFOLK on Unsplash
If you unpack that, it may mean that the founder needs another adult in the room to take care of tactical elements of the business so that the founder can focus on growing the business. These functions often enable smooth business administration and compliance with operating regulations.
Payroll
Payroll, in the simplest terms, implies getting people paid. It is a laborious function that the founder wants to outsource to another “adult.” Payroll involves calculating and distributing accurate salaries, wages, bonuses, and employee benefits based on work hours, contracts, and company policies. Additionally, compliance is central, ensuring the payroll process aligns with the federal and state governments’ labor laws, tax regulations, and other employment-related statutes. Companies must maintain meticulous records, diligently deduct and remit taxes, and handle payroll taxes to fulfill their obligations.
Accounts Receivable
Accounts receivable refers to cash revenues yet to be collected. Especially for small accounts, many founders prefer another “adult” handling it. But it must be done. Managing accounts receivable effectively is crucial for maintaining healthy cash flow and financial stability. Companies must actively monitor and follow up on outstanding invoices, send timely reminders for payment, and handle any disputes or delays in collections. Additionally, aging reports are used to track the duration of overdue invoices, helping businesses assess their credit policies and identify potential risks of bad debt. Start-ups can improve their working capital and overall financial performance by efficiently managing accounts receivable.
Accounts Payable
Accounts payable are bills from suppliers or vendors yet to be paid. It is the reverse of Accounts Receivable and is crucial for maintaining good relationships with suppliers and vendors while optimizing cash flow. AP is another function the founder wants to outsource to a functioning finance “adult in the room.” Companies must accurately track and manage their payables to avoid late fees or damage to supplier relationships. Additionally, efficient accounts payable processes can improve the company’s reputation and increase its negotiating power with suppliers.
Budgeting
Budgeting is developing a financial plan that outlines a start-up's estimated income and expenses over a period. I have seen founders desire to outsource this because they are uncomfortable with Excel; more often, the founders want another person to pressure test ideas with. In the start-up context, the budget fleshes out the cash needs of the organization and helps shape the funding goals. As the company matures, the budget becomes a resource allocation tool and a financial control instrument against which actual performance is compared.
Taxes
Tax compliance refers to adhering to applicable tax laws, regulations, and reporting requirements imposed by the relevant taxing authorities. I can't remember meeting a founder who wanted to do taxes. In the United States, these are, most often, the Federal government/IRS (administering, for example, income and capital gains taxes), and state government (administering sales or excise taxes, among others). Start-ups have to be mindful of various employment and social security obligations. The operating CFO is responsible for calculating them correctly, paying them on time, and then filing the paperwork declaring compliance by specific deadlines. Failure to do so may lead to penalties or legal consequences.
These are essential functions for a start-up; when the founder does not have to worry about them, this accomplishment has a lot of value. However, this is a partial list. One has to look at the strategic CFO's responsibilities to see how much value a well-rounded CFO can add to the executive team.
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