Good CFO/Bad CFO
Rob Krolik, Venture Capitalist and former CFO
Jeff Epstein, co-CEO, CFO, Apex Technology
There's a stark contrast between an effective finance chief (CFO) and an ineffective one. Before you hire or promote a CFO, you should be aware of those differences.
A good CFO knows how to communicate, manage teams, and knows the details behind the numbers.
A good CFO has a sound understanding of all key finance functions including accounting, planning, fundraising, risk management, tax, facilities, insurance, and treasury.
A good CFO paints a financial picture of the company's next 12–24 months to help the senior executives see the future and plan accordingly.
A good CFO responsibly manages cash. They understand when the balance will be low and what to do about it (whether to slow down cash burn or raise capital).
A good CFO obtains input from other senior‐level executives, helps them understand the needs of the company versus the executive, and architects a financial plan that balances those needs.
A good CFO reads the tea leaves of the sales team and the overall market, then helps course‐correct to ensure the company has future viability.
A bad CFO blames others, always has an excuse, and doesn't take personal responsibility. A bad CFO will say things like, “The executives spent too fast” or “The CEO is too optimistic” or “Our Board members always think of me as the bad guy” or “VCs won't give us funding” or “Our strategy doesn't work.”
A good CFO understands the root cause of what goes wrong by highlighting the issue and proactively providing information to the Board of directors, CEO, and other executives to help them see the path forward.
A good CFO is a great manager. They hire all‐stars in their respective fields (e.g., accounting, tax, facilities). They trust them to do a great job while maintaining open communication and having regular check‐ins—trusting but verifying.
A good CFO has a network of professionals to hire or solicit feedback from in order to make the organization better.
A good CFO knows how to delegate since it would be impossible to be an expert in each area under their purview.
A good CFO provides a vision of where the finance organization should be in 18–24 months to help the company scale and then supports the finance team to get there. Other executives do not consider a good CFO as only an accounting or tax expert, but as a critical strategic partner.
A bad CFO gives Engineering, Product, or Marketing “advice” to the respective executive.
A good CFO provides valuable data and insights when another executive is over or under budget and shares unbiased analytics that will help solve problems and respect boundaries.
A good CFO speaks visually, with pictures and analogies, not just analytically. They communicate with short, pointed, nontechnical accounting or financial explanations in making a point.
A bad CFO wraps themselves in jargon and focuses on what people can't do and is always ready to say “No.”
A good CFO has high integrity and factually reports the numbers. They are a risk manager who helps manage the lows and highs by anticipating them and providing warnings to the company.
A bad CFO looks for loopholes and manipulates the numbers to tell whatever story they want.
A good CFO plans ahead and encourages staff to tell the truth quickly—whether it's good or bad news—without fear of reprisals.
A bad CFO is continuously in a state of chaos and never wants to hear bad news from their staff.
A good CFO acknowledges they don't have all the answers and engages their team in solving any issues.
A bad CFO feels best about themselves when they have all the answers.
A good CFO explains overages and shortfalls methodically, using waterfalls to show the ins and outs of how actuals vary from expectations.
A bad CFO will not roll up their sleeves and dig into the nitty‐gritty.
A good CFO will pick up a piece of trash on the floor when they walk by without saying anything to anyone.
A bad CFO acts like a cop and wields their power over others.
A good CFO has the highest ethics and acts as the moral compass for the organization, calling out bad behavior without focusing on the individual, all the while holding their team to the highest standard.
A good CFO focuses on shareholder value balanced with employee and societal needs. They discuss the company's financial picture with all employees to help create transparency, to help inform decision making, and to provide context to decisions that have already been made.
One final difference: a good CFO is a voracious reader.
Thank you to Ben Horowitz's article “Good Product Manager/Bad Product Manager” for inspiring this article.
Chapter 17 Other Areas to Partner With
While Sales, Service, Marketing, and Legal are the areas where a startup CFO can make a big impact immediately, the scope of your responsibilities are company‐wide and you can make Finance a valuable partner to the entire company. Here are some tips on what you can do that will help your company go from average to great.
Budgeting. For a startup, the budget is used to help determine resource decisions. Sure, it is always helpful to compare actual vs. budgeted revenue (and bookings), but for many startups, the budget is what drives investments in areas like new hires, marketing, and other material spending. And, of course, it is critical to use for cash forecasting. As you progress during your fiscal year, how you are doing against your budget will drive your allowable expenses, especially new hires. So, you will want to establish a formal budgeting process as soon as reasonable. For a startup, the process should include the following:Building the budget. You should work with the other group heads and all those who will have control of spending and sales. Building a simple template for people to fill in sales and spending assumptions as appropriate will make this work much easier.Budget review. Once you have a budget, and have it approved at a Board meeting, you should review it monthly with the team. Transparency with the team and the Board on how you are doing vs. expectations, and why, is a critical part of scaling. This Actual vs. Budget process (AvB) can be used to open up planned investments and hiring or as a revision of expected cash burn.Integrate the budget into processes and systems. For example, working with the HR team to approve new hire requests vs. the budget, or marketing processes around investment in advertising will help Finance be a true partner. And the more you can work the budget and associated analysis into your systems, the quicker and easier your monthly reports can be created.Budget revision. Many startups will need to revise their budgets. Early on, your budgets may only be for two quarters, but you need to track carefully and communicate with the team and the Board on any budget revisions. As you scale, you will want to avoid any material revisions and try to stick to an annual budget process. But one that