July 8, 2020

On-demand CFO - what does that mean, who needs a CFO and what is the major role of a CFO? By Georgia Athanasiou

On-demand CFO - what does that mean, who needs a CFO and what is the major role of a CFO? By Georgia Athanasiou

In this episode, Georgia Athanasiou the on-demand CFO and an angel investor at Keiretsu Forum explains what CFO's do, who really needs a CFO and what CFO really does in the company. We also talk about early stage founders and how should they make their financial projections.

Article on making financial projections for your startup by Guy Kawasaki: https://guykawasaki.com/how-to-create-an-enchanting-financial-forecast-officeandguyk/

Georgia's LinkedIn: https://www.linkedin.com/in/georgia-athanasiou-508316/

In this episode, Georgia Athanasiou the on-demand CFO and an angel investor at Keiretsu Forum explains what CFO's do, who really needs a CFO and what CFO really does in the company. We also talk about early stage founders and how should they make their financial projections.

Article on making financial projections for your startup by Guy Kawasaki: https://guykawasaki.com/how-to-create-an-enchanting-financial-forecast-officeandguyk/

Georgia's LinkedIn: https://www.linkedin.com/in/georgia-athanasiou-508316/


Transcript

This is fundraising radio entities, a guest speak with Georgia. They show an on demand CFO for Serbs, and also an angel investor. 

And in this episode we'll talk about, who is an on demand, CFO, and who actually needs that kind of CFO. And also, we'll talk about the major financial terms that every startup founders should know. 

So, George, he called by, you giving us some background on yourself and on your role as an on demand CFO. Sure. So, good morning. Constantine. And thank you for having me. I appreciate the opportunity to speak to your followers. 

So, my education is in accounting in business, and I'm a licensed CPA. 

I started my career in banking, and I moved into high tech because I loved all the cool and disruptive technologies being developed by these startup companies. 

And young companies, and I wanted to be involved in high tech, and but I still loved working with numbers. So I've run finance for a few startup through various stages of their growth. 

I found that I enjoyed working with early stage startups. I just found that was the most fun stage through of their development, at least for me. 

So I started Bay area, CFO consultants about five years ago, and we served early stage startups. 

As they're on demand fractional CFO and what that means is I work with a portfolio of four to five startups at a time and I run the financial function for those companies. 

It's, it's really a cost effective solution, because once companies start getting funding, or if they're growing quickly or that sort of thing, they really do need a certain level of expertise that I can provide. But they don't really need it full time. And sometimes it's one day. 

A month, sometimes it's a couple days a week it just really varies where the company is and how complicated they are. So that and that is how I came to be where I am today, got it. 

So, since, I mean, since it's shows called fundraising radio, let's begin from the fundraising. So you mentioned that once the company begins fundraising, sometimes they do need a CFO. 

So, can you explain what's your role as a part time CFO in a fundraising process? What do you do there? Sure. In the fundraising probably. Well, let me talk a little bit about what I do in general first and then I'll jump into the fundraising. Is that okay? 

Sounds good. Sure. Okay. Great. So, my job. 

And working with these started companies really to stay on top of the numbers so that surprises are avoided, I don't think there's anything worse than a, and that's fun to see. 

Or a founder wants to see some big surprise, like, oh, no, there's no cash in the bank, or what happened to our cash balance. Why are we? So off of a plan? 

So, that is the one number one thing that people can provide to companies and so it's really and it's to manage the company's finances and put the proper financial controls in place. 

I also create a financial roadmap or plan to guide companies through their growth short medium. And long term, 

and that would include modeling different financial scenarios based on what the founder and management team think think the company can do we, 
you know, 
putting in a budget, 

putting in cash flow management, 

which is super important. 

And then reporting to. 

You know, financial reporting with plan to actual numbers, with the key metrics for a company. 

And it's also super important for me as the CFO to communicate financial results to the see, the board and the management team often. 

And especially if they already have some, some sort of financing so, for those companies in the Pre fundraising stage, which is something you need to know that you'll need to do when you start fundraising. 

And I work, I work with early stage startups, so the main driver of fundraising, and for that stage of a company's life is the CEO. So, the CEO was really heading up the process. 

And that's been what I have found all throughout my work with startups, 

and I, 

as I see, 

it will work with the CEO and the management team to put together the financial plan that will tell the companies financial story to potential investors. 

It's also to stress test the assumptions in those plans and to make sure it make they make sense because investors will try and poke holes in your assumptions in your plan and you just want to make sure that it's defendable, 

you know, 

worked with the founder to determine what kind of capital they want to raise to they want convertible notes. 

Safe notes, priced equity again that's going to depend on what stage of the company they're at and if there are and what makes sense and who they're trying to raise money from it. They're angels. It'd probably be a comfortable. 

No,
if it's BC funded,
it might be a,
you know,
it might be a price round also make introductions where I can, you know, 
there's no guarantees, 
but I do have a network and I try and use it when I can to help people do to make introductions and then participate in due diligence. 

So that's that's usually a big piece of what I do to help. My clients is with the due diligence and redoing requests and things like that, got it. 

And here, I want to talk about my favorite subject failure. Let's talk about the major mistakes that you see, founders may when they drive their company with no C phone. It. 

Well, I think the biggest mistake I see early on is that they don't hire good financial people to put the right financial systems in place. Early on the story. I hear. Most is it's overhead. I don't want to pay. 

I can hire a marketing person, or I can hire another engineer whatever. And what I found is that it could end up costing companies more to get their financials cleaned up on the back end. If they'd put a little bit of money in, on the front end. 

They're going to need clean books and good financial systems if they're gonna be out raising capital. And I think this is particularly important if they're raising with trying to raise venture money. 

And in the Super, you know, in the early stages, you don't really need a CFO to set up good financial systems. You can, you know, there's plenty of good bookkeepers and accountant to work on a part time basis. 

I mean, it's nice to have the oversight of the CFO, but if you're, you know, before fundraising, if your to make sure you have good people in place and you don't usually need them full time. 

And when I found is that not having good financial systems and tracking normally resulting in cash crunch and cash cash flow is always the biggest point I see. 

With startups and so start early and take care of your cash. 

That's usually I usually get called the on cash's problem so sometimes it's too late so I would urge people and founders to, to, to book ahead even as they're in the earlier stages and do it. Right? 

Right, so you mentioned cash tracking, basically with recommendation on that will you recommend some software some tool that would really help startup founders to do that by themselves to avoid those? 

You know, what capture several months after fund raising to figure out that hey, we're two hundred thousand dollars ago. What could you do? Recommend something? Sure. 

So, you know, as I mentioned earlier, you, you, you don't need. So, cash flow is really important and cash flow forecast to me, is one of the primary tools that a startup should have in their portfolio, a financial tools. 

And as I said, they should get that, they should get these things set up early on, you know, there's plenty of free Excel templates online. Let's say you want to do a weekly cash flow forecast as you're getting to. 

You know, we got some money in the bank.
You want to be very careful how you're spending it and you can, you know, 
if if I, 
if the founder's financially savvy, 

or if they have a financially savvy person on their team, 

or they can reach out to an outside accountant, 

you can put a very simple cash flow forecast and financial plan in place and do it early even before you raise money. 

So so what I'm getting at is they should be developing good habits early. There's plenty of free Excel templates online. 

So, I would urge the founders listening to this podcast to Google cash flow forecast templates. 

You can also Google, financial projection templates do a high level, financial projections from the beginning. Even before you're ready for a CFO or or raising money. 

Nice. Would you recommend any books on that? Probably or some guides that would help them gather the thoughts together? Basically. Yeah. So coma Saki is a you know, he's a legend in the startup world. 

He's been working startups since the eighties and he has a website. I would Google guy Kawasaki. 

I'm gonna talk about guy little bit later as well when we talk about pitch decks, but he has some good templates available and he has one that's a really good template for, for financial. 

Projections an office, a Microsoft office also has templates and I found a good weekly and monthly cash flow template in Microsoft Office tools. 

So they're there and they actually show you how, you know, how a person would fill that out. And again, at some point in time, you know, these companies are gonna be ready for a CFO and things get really complicated very quickly. 

Once they start growing and stuff, but merging the earlier earlier stage companies to start early and get some good financial. 

Controls and procedures in tracking complaints. Nice. I chose Google to guide us. Okay. So I'll make sure that I include that specific article in the description of this episode. 

So, we can describe to you how to how to make the financial projections, how to use the template of Geico psyche himself. So, it should be really useful. 

So, if you need to do that, definitely check out the link, being the description of this episode, next question, that I want to ask you is the terms. So force people can research it. 

People can Google when they run into some word, they didn't know, or some term that, you know, they can always ask, but if that happens on the meeting, that's really embarrassing. 

So what's your top five terms that any founder should know in the finance? 

Well, there's a couple things I'm gonna put out there because so the main terms founders need to understand these days, because we're in a different world than we were five years ago or two years ago. 
Even one is, they need to really understand cash flow and to understand their cash flow. And then 
they also need to understand that they eventually need to get to profitability. 
And and they need to understand how these terms work within that. 

Context of their business, you know, in the past, and, you know, investor focus has shifted away from revenue growth. So as a founder, they need to focus on on building a sustainable business. So that's, you know, that will eventually be profitable. 

And that's where I think people are focused these days. The other thing they need to understand are the key financial drivers in their industry. 

You know, what is driving the business what is driving my industry my background is in sensors, sensor networking. And so that's a hardware software product. So I would be looking at. 

And this is what, if you were in that type of company, your investors would be talking about, you know, better know what your pipeline is. She better know what your bookings are, you better. 

Know what your revenue cost of goods sold your margins, you know, what are you projecting those numbers to be if you haven't finished developing your product you know, that kind of stuff to know what drives your business and know what those numbers are? 

I think that's really, really important and you should do that before you even step into a into an investor meeting and finally, you know, they should just have a basic understanding of financial statements. You don't need to be a CPA. 

You don't need to be an expert, but just know how these. 

Statements work, and how they flow and there's probably our classes on LinkedIn you can take or other places that just give you a financial back, you know, some financial background for non financial people. 

So I would recommend maybe taking one of those maybe an hour. I don't think they're very long. 

Right. That's actually good advice. And I'm like hundred hundred percent. Sure. That there are such good videos out on the web. I will not include links to those. You can find them by yourself. I believe in you guys. 

So, next question that I wanted to discuss with you is bringing in the CFO, so on demand, CFO, even though it's part time, I imagine it's still pretty costly. 

So, which stage can or should the company bring the CFO and how much that costs? What's the range there when companies bring in an on demand CFO? 

They should have at least some level of financing I mean, that is my recommendation somewhere between the seed round in in a round you know, maybe the CFO helps them raise the a round. 

Sometimes the seed rounds are a little less demanding from a financial standpoint, because I think angels and people like that who are participants in a seed round are a little more interested in the team and the technology solution. 

But when you're starting to raise any around, now you're starting to talk to venture capitalists. And so then I think it's going to then you're gonna have to show up. 

You know, more, we're, we're more complexity comes in and you're gonna have to do a lot more digging and explaining and understanding. So, I think somewhere between the seed round in the a round. 
He's a good place for CFO to come in. Now, phone costs can be I mean, if a company's growing, they're growing really quickly and they've got the money it could cost a lot. 

But sometimes, you know, in some cases, with my clients, I'm only in there about four hours a month. Might be a couple hours a week. It could be. Maybe it's a quarterly review. It just really depends on the company on where they're at. 

So could cost anywhere from, you know, a thousand dollars a month if you need help on a two or three days a week, then that's gonna cost more. 

But I think it really just depends on where you are. And if you have good financial people in place, so so you have a good controller level person, you're good accounting, good bookkeeping, slash accounting firm that can help, you know, these aren't CPA to run, who do audits and do taxes. 

These are firms that are focused on startups, they're focused on bookkeeping and accounting for startups. And there, you know, they take care of a lot of the day to day business. 

So that the CFO doesn't need to spend as much time with your company. And then you're really getting good value for it for the money. 

But what's the average price range that you regularly? See so, is it from five hundred dollars to ten thousand dollars? Is it from, like, three thousand? No without damage it really depends. 

Primarily started. It could be anywhere from three to six thousand a month. And that was just really again, it depends on how much help they need how big they're growing. They're growing pretty quickly and they're and they're fairly, you know, they've got some revenue. 

The revenue's going pretty quickly and we need to keep, you know, you need to keep tabs on a lot more things and and things get more complicated. Then, it's gonna be more it maybe twenty hours a month, or it may be. 

You know, thirty hours a month, but one of the things I found is that, with my time, gets to be two or three days a week, then we start looking for a more permanent solution in terms of a bringing a full time person. 

Because then they will get more bang for their buck with that person. Oh, nice. So, here actually help them find. Oh, yeah, absolutely. 

And, you know, again, my job is to keep them going in that in between stage between early stage startup and when they need to hire a full time person. So I do, so I manage it. 

But then there comes a point, you know, like everything where, you know, I've worked myself out of a job. I need to. 

Help them find a full time person they're going Super quickly, I think just need that full time attention and my job. Yeah. And and, you know, and then. 

You know, I can help find that person can help transition that person to bring them up to speed and all those things. Nice. Nice. So, let's talk a little more about the price of this. 

So, I personally was asked to do the financial projections as a person with a financial background. And I was asked to do that by, like, really, really early stage companies that we're thinking of seed round. 

I mean, Pre, seed round and they were just hoping to show off a little bit showing. Hey, we have financial projections that our competitors don't. So, what's your advice to those people? 
How can field to the whole thing by themselves except for using that template? Have you ever done, like, an investment in a company where you basically putting your time and return you get equity in the company have you done that? 

I have done stock options. Usually,
it's a,
you know, 

normally I, 

I work for cash just because it's, 

you know, 

working with early stage startups is sort of a risky business and, 

you know, 

I've taken some equity at some points in time but I think if you, 

but let me just offer some advice for the person doing the high level I think if you're super early stage and your just trying to get some financial plan in place, 

I think,
using those templates is a good way to start. You may not need to pay. 

A, you know, for, like, all the bells and whistles and stuff like that initially. And I say that, because I've had clients actually raised money that way where we did just a very simple. These are the projections. We've got revenue. 

This is what we're thinking. This is how much we want to raise. This is how much the, you know, the investment we're seeking is going to help us ramp up to and it can be very high level. 

So, you could just do, you know, they could, you could probably do a super high level. 

Financial plan, it doesn't need to be, you know, with all the bells and whistles. Now once you start getting to BC funding, you're gonna wanna. 

You know, now now you need to start looking at a more complex and, you know, assumption different driven plan. Right right. That's actually a good point too. When you're preceded. 

They should definitely do not need a sophisticated financial plan because it just looks weird. 

That's a constant need to be honest financial and I'll talk about this a little bit later to if we, if we have time, but, you know, the financial plan is gonna change. 

So before things start raising money and it's good to have the disappointment. I encourage your listeners to do that, but also encourage them to think it through, but also doing an outline. 
You're just doing it on the high level to start filling the details as as, you know, more. Right right. That's 
true. 
So let's talk a little bit about the alternative sources of capital so right now this topic is really popular as a, 

after I mean, 

during the crime virus, 

basically, 

traditional investors really didn't input much cash into the new startups and people were just trying to find new alternative sources of capital. 

What's your what's your advice on that? What where your favorites altering sources of capital so there's so there are there are choices. So there's a couple things that I. 

So, 

from my favorite source of capital, 

this non dilutive is the National Science Foundation grants grants, 

and those are for science and engineering based startups to comer to commercialize technically risky ideas. 

They're non diluted. You can reset to one point, seven, five million dollars. And but you have to be solving a science or engineering based problem, so it's not something that everyone would qualify for. 

But if you have some sort of science or engineering problem, you're trying to solve. It's definitely something you should look at. What I would encourage your listeners to do is Google seed fund NSF and it's gonna take you to their website. 

I've worked with, you know, I work with sensor networking companies and other, you know, kind of technology type companies. 

So, I've worked on the National Science Foundation grants a few times, and I just have, you know, I found him to be a great way for company to get started. 

The other thing I've seen a lot of is pitch, you know, obviously pitch events being done virtually now. 

Are actually being very well attended by investors, because at least the ones I've been sitting in on, have been very helpful and they've gotten very good attendance and angel groups. 

I've been sitting in on have gotten very good attendance by investors, and I would recommend the listeners to get their get your pitch together. Get it, get it working properly. I mean, sometimes they have price money. 

They can provide exposure to investors.
And now that they're virtual,
you know,
you get people from all over the world,
attending these events and the one I particularly like and and I'm familiar with it's called pitch force 
and it is put together by a angel named Max Shapiro. 
And it's very, I think he had a couple hundred people there the other day, they do, to an event, but it's great way to get exposure. They provide you with guidance and things like that. 

So that's another that's one thing the other would be maybe an accelerator incubator. Sometimes they'll provide seed money in exchange for equity, and they also provide some training and mentorship. So that's going to be a ton of seed money. 

But there's usually some sort of seed money involved, you know, due to covet companies like Google and Facebook for making grants available. If you're an underserved. 

You know, entrepreneurs like people of color or, you know, or you're serving under represented markets. There. 

I know that a lot of the, the tech companies are carving out money for that sort of thing. So you can look into that. 

You know, as a company grows in, there's revenue, there's revenue based financing again that can work. If you have consistent growing revenue. I know some angels are working or getting involved in that particular type of financing. They're not taking equity. 

They're just doing revenue based financing. What that means is they put money in the company, and they take a percentage of revenues until they get to X their investment back. Plus maybe some interest I I think everybody's running it differently. 

So those are just some ideas sort of, 

outside the normal course of business, 

but I do want to make sure your listeners are when they're looking at angels, 

when they're looking at VC funds I, 

I just want to make sure they're targeting the right people in those funds the right type of investments there's like, 

so many different investors these days and people specialize so just make sure if you're going through that route that you're talking to the right type of funds. 

Otherwise you're wasting their time in yours. So, and I think a little research can go a long way there. 

Right. That's extra good advice. And just the worrying to everyone listen to this one that's revenue based funds are really for companies that seed or Series a stage where you actually have solid revenue for at least a year or so. 

Otherwise, Teresa yeah that's correct. There's there has to be some level of recurring revenue and some growth to that as well. So it's not something that you would. If you're still in product development, you would, you would look at. 

It's something you would look at. If you've got some recurring revenue already. And you're growing and, you know, this is just a way to grow faster, maybe put some money into sales marketing. However right. 

So, let's talk about more traditional sources of capital Angel, investing your a member off to read so for yourself, which is a big angel group. Right? What do you like to invest yourself as and Joe investor? 
Well, you know, I'm just starting now, so this is all, you know, I'm kinda taking my day job and and using that knowledge to move into angel investing. So I'm just starting out. 

I am right now is invested and I'm investing into a portfolio portfolio. 

Is that they invest in women, entrepreneurs and in special interest funds they have a couple of a couple of funds that I'm included in and it's like, activating longevity funded like that. 

Like, what would that represents? There's also the writing America fund, which is for underrepresented founders serving underrepresented market with current to. 

I had just joined within the last couple of months. I'm still going through my educational process. I haven't done anything active with them yet, but hope to in the coming in the coming months. 

So, I and my budding angel investor, so to speak. 

Understood so, let's talk about what you like to see on the beach deck. So is in person with a financial background. I mentioned that. 

You'd like to see some numbers, but let's put aside my, my assumptions and she was three must have points on a beach deck for you personally. Yeah. 

So the pitch deck I think it needs to, you know, there are certain numbers. That are included their summary numbers. 

But I think the I think they entrepreneurs need to know their numbers and they need to be prepared to answer questions on their numbers. 

I, I sat through lots of pitches and have seen some very good ones in some not so much. I'd like to see, you know, they're gonna have to include through your projections. 

And one of the things they're gonna need to do is provide, you know, when you build your plan for an investor, they're gonna need to provide a bottoms up approach, not top down. 

And by that, I mean, you know, a lot of times you'll see a pitch that says this is a twenty million dollar market so, twenty billion dollar market. So, if we capture one percent will be two hundred million dollar company that just doesn't work for investors. 

So that's one thing that they need to be aware of. 

And then, you also really need to know your key metrics. What is driving your business, what's driving your industry it's not, you know, when you really, really need to know. 

And then the other thing that I think it's really important to include in a pitch. Deck is, how are you gonna use the money you're raising an example? Would be we're raising five hundred thousand dollars. 

We plan to have our prototype by this date, then we'll go out and raise another two and a half million to go to market or but haven't well thought through. 

Don't don't just slap some numbers on the spreadsheet and and think you got it handled, you know, put put thought into all of this, you know, and again know your numbers have them. 

I mean, have them at the tip of your top of mind, because you're gonna a lot of pitches are very fast. And so they're gonna ask questions, you don't have a lot of time to go through coming through reports 
or things that you need to know your high level numbers. 
Absolutely. Right. So, at this point, where moving onto the last question of today's episode call to action. So, what's that one thing that you want to do? As soon as the episode is over? 

So, two things I'm gonna just really quickly, I think listener should head over to website and download in addition to the projection templates. I think they should download the ten slides. 

You need in a pitch it's great. It just tells you it misses very standard. 

You know, it just tells you the ten slides you need in your pitch, and it gives you tips and all that kind of stuff. 

The other thing I'd advise people to do is go ahead and pull down cash flow, forecast and financial projection templates and take a look at those and see, you know, and see how you can implement those as quickly as you can. 

I mean, even from from the very beginning, I think companies need to be careful and I've had so many clients that, you know, we've had to just go in and clean up and do our best. But sometimes it, we're too late. 

So do it early and and stay and stay up with it. Nice, great advice. And I'll definitely include the link to of this episode. 

So, take a look at it for sure. And we'll wrap it up here. Thanks a lot Ga, for coming up and for sharing your knowledge and financial side of the startups. I think it was really interesting episode. Thanks for that. 

Well, thank you team and enjoy your enjoy your weekend and let me know if I can help you out in any other way. Thank you.