Founders are smart, ambitious, and driven. But for a former software engineer or salesperson launching their own startup, running the company’s finances represents a huge learning curve.

Of course, startups have investors, advisors, accounting firms, and other sources of support to cushion the business from serious missteps. But eventually, scaling companies will seek to bring on board dedicated financial expertise, often in the form of a Chief Financial Officer (CFO), Vice President (VP) of Finance, Head of Finance or Finance Director.

So how does a founder build a profile of the right CFO candidate? And how can founders lay the groundwork for their new finance leader to get off to the best possible start?

As startups raise rounds of funding and become more operationally complex, the demands on founders can become onerous.

But what kind of finance leader you hire into the business depends in large part on your size and stage. “The conventional playbook at an early stage – say, following your seed funding round – is to look for a Head of Finance who can implement the foundational structure in the finance function, start to build out a team, and prepare the business to raise a strong Series A round,” says Guy Hutchinson, a former tech CFO and founder of Startup CFO, a leading community for CFOs in tech startups and scaleups.

Founders hiring a Finance Director or Head of Finance should bear in mind each candidate’s potential to eventually grow into the CFO role. “An early finance role is hard graft, and although lots of finance folk think of themselves as a CFO in waiting, they need to show they can walk the walk before graduating up into a C-suite position,” says Hal.

Recruiting a full-time CFO or another finance lead almost always represents a significant investment for an early-stage company, in salary and other benefits including equity. In Guy’s view, founders should think about their size and stage and consider whether a fractional CFO might make more sense than a full-time hire.

For instance, if your company has fewer than 40 people on staff, and if you’re below £5 million in revenue, there is an argument that a fractional CFO might be a prudent investment. Guy continues: “An experienced pair of hands who can fix some of the underlying financial processes, and lay the groundwork for a CFO with all the badges to come on board later, can make sense.”

Fractional CFOs can take equity in the business, but the overall equity stake will be far lower than a full-time CFO, making this option attractive for founders who are keen to prevent excessive dilution and retain as much control as possible over the cap table. “It can be a good idea to use the option pool and funding raised in a Series A to fund your full-time finance leader,” Guy thinks.

In the finance function, talent can take many different forms. To Guy, there are two main groups founders can use to classify CFO candidates: ex-accountants, and ex-bankers.

“Typically, former accountants will be capable financial managers; maybe they’ll need to work harder to get up to speed in areas like M&A and leading growing functions. Then, ex-bankers tend to have that innate entrepreneurial drive, but they can often need more support on the fundamentals of accounting, reporting and compliance,” says Guy. Practically, that might mean bringing in additional accounting or finance planning and analysis (FP&A) resource in-house.

Additional considerations include the nature of your business, and the kind of financial strategy your business model may need. A scaling software-as-a-service company with an established customer base might have hundreds of contracts to deal with in a given quarter. Managing cash flow and working capital in this kind of company looks very different to an early-stage biotech startup, where revenues could be several years away.

In the UK, the choice of one profile or another is likely to be about culture fit and overlapping skills in the team. In the US, on the other hand, there is a clearer hierarchy in the kind of CFO profile that’s seen as most desirable in a startup context. Hal elaborates:

Setting out on their search for a new finance leader, founders should start by doing their own diligence on what experience they really need to bring on board, bearing in mind the journey ahead for the business. Gauging a candidate’s appetite for the long haul is crucial. “A startup CFO needs to be prepared to be in it for the long haul,” says Hal, “and it’s the founder’s job to identify that inner drive and eagerness to do the hard yards in the early days.”

Alongside candour on the scope and substance of the role, providing insight on the personal side of the job is critically important. “Understanding the existing leadership team, and seeing that the team likes spending time together, can be just as important as the technical aspects of the role,” says Guy. “Any substantive differences or strategic disagreements in the founding team will be a red flag for a potential CFO.”

No finance leader expects to inherit perfection when they start working in an early-stage company. But there is a difference between inevitable startup growing pains and genuine issues that can turn a finance leader off a potential new role completely.

“The list of things CFOs are looking out for during the recruitment process include the company’s history of meeting its compliance obligations, historic accounting issues, and any glaring problems with the cap table and/or preference structures that could damage the prospects of raising new money,” says Guy. “What does the cap table look like? When is the next planned funding round, and what targets does the business need to hit to raise the desired capital?”

But senior financial professionals will make sure to take stock of the whole picture, including the company’s commercial efficiency. “They’ll certainly assess the growth engine: if sales and marketing are working well with solid data and predictable seasonality, that gives a potential CFO more confidence that the business will be able to hit its targets,” Guy says.

It may seem counterintuitive, but a senior finance leader is less likely to worry too much about day-to-day inefficiencies or friction in the existing finance function. Guy says:

A strong finance hire will have positive-sum effects right across the business. “A great CFO will embed a sense of financial understanding and collective responsibility for the numbers in every team member. They should be great communicators who can show their own passion and get everyone excited about the numbers,” thinks Hal.

But the list of factors that can turn a founder off a potential candidate – or put a CFO off from making the decision to join a startup – is long. The key to a successful hiring process is to be as candid as possible from top to bottom, from strategy and fundraising goals down to unit economics, while giving the potential hire a proper insight into the founders and leadership team, letting them see how decisions are really made.

“At the end of the day, your CFO is one of your most important leaders, full stop: they just happen to specialise in the numbers,” says Hal. Your choice of CFO is a genuine inflection point in your company’s growth trajectory. Ensuring that the candidate’s ambition, skill and leadership qualities match your own is a great start.