Finance Insights

Mistakes to Avoid When Hiring Your First CFO

Jana Kovacovska Tiny CFO

The CFO role is ever-evolving. The qualities that made a great finance leader in the year 2000, or even 2010, aren’t the same as they are today. And while it’s easy to focus on the wishlist qualities you’re looking for, it can also serve you well to pinpoint what you don’t want in your company’s chief finance executive.

In this post, startup strategy advisor and founder of Tiny CFO, Jana Kovacovska, highlights 7 red flags to watch out for when bringing on a CFO for the first time.

Hiring the first full-time finance person – let’s call her CFO, although the exact title could vary – isn’t without its headaches. An expensive hire who will have access to the most sensitive data in the business, and can make or break fund raisings, mergers, international expansions, and Buffett knows what else… there’s not a lot of room for error.

So what are the red flags to watch out for?

1. Lack of strategic mindset

The modern finance function is all about adding substantial value to the business. What’s the growth ambition? Which markets are worth expanding into, and what will the financial impact of going there be? Should you raise capital, how much, when, and from where? A good CFO should be excited by these topics and ready to tackle them head on.

Hire those who come alive when thinking about the big picture.

It is an outdated view that finance equals back office bean counting – yet, there are some finance professionals who see themselves that way. Instead, hire those who come alive when thinking about the big picture.

2. Not willing to get hands on

Seemingly contradictory to the previous point, the first finance hire will still need to be hands on. It is not unheard of that new hire CFOs are met with boxes of paper invoices that are not booked; employee option “contracts” that consist of casually mentioning the grant on the employment offer, and never since; or forecasts that literally don’t work at all.

Even if some of the tedious tasks can be delegated to contractors, they will need to implement new tools and processes, and that will involve getting their hands dirty with detective-like work. Often, very senior leaders have no particular desire to do this. They are used to established processes and things running reasonably smoothly – completely understandable, just not a great fit if you’re not there yet.

3. No exposure to companies at a similar stage

It is easy to get carried away by someone’s credentials, especially when they come from much bigger, more famous companies. It makes us feel special that they chose us, it adds credibility, and the logo of their former employer looks great on the investment deck.

Watch out if you’re thinking of bringing someone who has never seen a business smaller than $1B into your $10M operation.

That works well if this candidate was at the company since it was similar to yours in size, and experienced the growth stage. But watch out if you’re thinking of bringing someone who has never seen a business smaller than $1B into your $10M operation. It’s not just smaller – it’s different. Most likely, you don’t (yet) need the same corporate processes. But you do need an aggressive growth mindset. Make sure that this potential CFO-hire is hyper-aware of the differences in growth stage, and how they would approach them.

4. Sector expertise but little finance experience

Perhaps this is a bit obvious, but sometimes we get excited about a potential hire having worked at a company that does exactly what we do. It may be very tempting to find someone who worked at a place that makes HR tools so similar to yours, down to the shade of purple in the logo and a really cool Instagram account.

However, that level of “sector experience” rarely really matters and could be a downright disaster if you get so excited you forgive the person in question that they don’t know what working capital is. If you love everything else about them, see if there is a role that would be a better match.

5. Poor people skills

Finance seems like a pretty technical role, but running the numbers is 20% of it, while communicating them is 80% – especially in a senior role. Your CFO should be someone you’ll enjoy talking to (a lot) and get push back from (also a lot), and who can effectively communicate with every senior person in the company. They should be comfortable with investors, tech leaders, marketing leaders, along with their future teams.

Running the numbers is 20% of it, while communicating them is 80% – especially in a senior role.

Even the most brilliant finance expert’s talents will go to waste if they can’t bring others on board with them. If you sense a lack of ability or willingness to build relationships, it’s not going to work. If they’re true experts whose insights you genuinely need, consider hiring them as an independent consultant or in an advisory capacity instead.

6. Not keen on tech tools

There was a time when a CFO could do a great job with nothing but a calculator, a pen, and a paper. Then there was a time when Excel would do. Both are gone.

Your CFO doesn’t need to know every tool out there, but she needs to be willing to identify and implement the right ones for your business.

Today, just about every company could benefit from some level of finance automation – there is no good reason for doing everything manually even in a small, one-person business with little complexity, even if it’s technically possible. The bigger, more complex, and fast growing the company is, the more crucial it is to identify and implement the right tech tools.

Your CFO doesn’t need to know every tool out there, but she needs to be willing to identify and implement the right ones for your business.

7. Lack of integrity

The other day, I went down a particularly enjoyable rabbit hole on Google, reading about financial frauds and what specifically the people in question did to end up in jail. Try it – it’s really fun. The CFO is someone who can be instrumental in making your company massively successful; on the other hand, they can also be instrumental in tax evasion and lots of other things you don’t want to read about on the cover of Wall Street Journal, at least not if it’s your own company being discussed.

It’s one thing to emphasize metrics that look great and being completely transparent about how they’re calculated – it’s quite another to lie about your cost base to avoid taxes. Make sure your CFO’s values are aligned with your own, and when in doubt, find someone who won’t cost you sleepless nights, or worse.

Jana Kovacovska is the founder of Tiny CFO, a finance newsletter featuring actionable, bite-sized advice for modern entrepreneurs, and an independent strategy advisor to companies and investors in the tech, consumer, and media space. Her recent clients include Software Club, Deliveroo, and The Business of Fashion. Previously, she was a seed-stage investor and a consultant at McKinsey & Company.