Helen (00:02.298)
All right, to explore our topic today, I'd like to introduce our esteemed guests: Steven Uster and Deepak Ramachandran. They're the co-founders of FundThrough and entrepreneurs with a wealth of knowledge to share. So, Steven and Deepak, tell us a little bit about yourselves and your journeys as entrepreneurs. Let's start with you, Steven.

Steven (00:24.833)
Sure, thanks. I'm happy to be here. My journey as an entrepreneur really started after I realized I didn't want to be a Wall Street investment banker for the rest of my life. I learned a lot of skills right out of undergrad by working on Wall Street as an investment banker and then took those skills to start a company with Deepak as my partner. I had run several companies before FundThrough, and now we've been doing FundThrough for about 11 years.

Helen (01:03.140)
Awesome. Deepak?

Deepak (01:04.494)
Yeah, I have a similar story to Steven. I was, I guess, in my late 20s, early 30s when I also had a corporate job. I was at a consulting firm, McKinsey, and I was talking to people - people who were significantly older than me - about what their lives were like, what they liked about their lives, what they didn't. I found the people whose lives resonated the most with me were entrepreneurs who ran their own businesses. So that's what I set out to do back then. That's many years ago, as you can see from my hair.
This is, I guess, my third or fourth business. Steven and I started this, as you know, 10 years ago. It's been doing great, and we love helping small businesses grow and find their way. It's not an easy thing, running a business, and it's a whole-person thing - it takes all of you, not just your work hours. It's fun, exciting, consuming, and we love it.

Helen (02:01.624)
It sounds like you really caught the bug early and it just went from there. Great, great. All right, let's set the stage a little bit. Steven, I'd love for you to talk about how the finance function evolves within a growing company and the different types of CFOs that are possible.

Deepak (02:05.420)
Yeah.

Steven (02:21.525)
Sure. When you're starting out, you're unlikely to have a CFO at the table - probably unlikely to have any finance person at the table. It tends to either be the founder, if they have some background to manage the books and send out invoices and reconcile payments and file taxes, or it may be a bookkeeper or an outside, part-time consultant.

You don't need somebody full-time early on to manage the business. It's probably better to have your scarce dollars spent driving revenue, creating a product, and selling that product or service. But over time, there does become a need for finance, and it doesn't have to be a cost center. Typically, people are hesitant to add a finance professional because they think it's just a cost. But if you have the right person in place, that person will think about lots of different aspects of your business and can actually unlock a lot of value - and I'm sure we'll get into that as we go through this conversation.

When you finally get beyond the founder or a part-timer and progress to maybe a controller - somebody on the accounting side to manage the process - until you finally get to a CFO, it's important to note that there are different kinds of CFOs depending on your needs, stage, and what's important to you.

Deepak and I often think about a CFO as either an external-facing CFO or an internal-facing CFO. They have different roles and responsibilities and therefore a different profile.

If you're a business looking to raise a lot of money or have involvement in the capital markets - like FundThrough, for example, where we have a lot of debt facilities in place so we can provide that capital to small businesses - you may look for a CFO with capital markets experience. Or if you're raising equity dollars, you similarly need someone with an investor focus, not just an internal focus.

You also need to take care of the inside of the shop and know whether what you're doing is profitable: What are your real costs? What are your real margins? What would it take to become profitable and maintain profitability? And if you sell multiple products or services, what's the profitability across each so you can determine which makes you more money and where to focus?

There are a lot of aspects of the CFO role that are important to think about even before you start hiring for that role.

Steven (06:01.089)
I'll turn it to you, Deepak, because I'm sure you have more to add.

Helen (06:53.112)
Sure. The question was how the finance function evolves within a growing company and the different types of CFOs.

Deepak (07:02.444)
Right, I thought Steven answered that well. As you're getting going, your job as a founder or business owner has to be focused first on revenue - that's the lifeblood of a business - and usually, as the starter, you have an idea about where you're going to get it. You're going to win certain customers, sell certain products, all that.

We tend to divide finance functions into three buckets internally: (1) bookkeeping and reporting, (2) financial planning and analysis (FP&A), and (3) external-facing work - raising debt or equity and getting outside capital. I tend to think they come in roughly that order.

The very first person most business owners need is a bookkeeper. The same kind of person who's really good at going out and winning business is often not the person who loves poring over QuickBooks at the end of the day and checking whether AR has come in. Having that back-office person you can count on - whether it's part-time, a spouse, a business partner, or another part-time bookkeeper who can keep books and records moving - is a really valuable first add.

It takes your anxiety off: making sure bills are paid, employees are paid on time - all that basic stuff is usually the first thing you look for out of finance. We wouldn’t consider that a CFO by any means. Then that grows. As Steven mentioned, you often want somebody who can help you cut the numbers and figure out which customers are making you more money, and why.

You really need a CFO at the stage where you're starting to talk about raising money - debt or equity. Even in the debt world, you don't necessarily need a CFO to deal with, for instance, people like us. We have a lot of clients who come to us directly as the founder and owner. Some have a controller or a head of finance who isn't a full-on CFO, and some have a CFO title. We can work with that whole range. As a business owner, you don't necessarily need to go whole hog just because you're raising a little capital. As you figure it out, the sophistication you need will become clearer, depending on how complex your business is.

Helen (09:50.036)
That makes sense. It's contextual at the end of the day. Piggybacking off that: are there mistakes CEOs risk by not bringing on a finance leader at the right time? Basically, what's the cost of inaction?

Steven (10:23.925)
I think the biggest mistake CEOs make is thinking of the finance function as a cost center and not as a value-adding function. Many entrepreneurs think that keeping your books in order, sending invoices, and reconciling is something that has to get done but nobody wants to do - “I'll do it eventually.” Nobody goes into business to do bookkeeping or reconcile bank accounts.

The problem with thinking like that as you grow is you might be going in the wrong direction without knowing it.

For example, you might sell three different products and not know the real profitability of each. You get big orders for the least profitable - or unprofitable - one, keep selling more, and wonder why your cash keeps going down because you don't fully understand which to focus on. A good finance leader - and this does not need to be a senior CFO - can do that analysis.

Even stepping back: it's great to get the PO or work order, to get the new customer, to do the work, and deliver the product. But you're not running a charity. If you don't get paid, your working capital suffers - you still must pay employees, inventory, insurance, rent, etc. You won’t get paid unless you send an invoice.

Many entrepreneurs, because they're focused on selling, won’t set up and send the invoice right when the work is done. If they had a proper finance person or bookkeeper in charge, they'd get paid faster.

Getting paid faster is the secret sauce of running a business because you can use that money to invest in and grow the business. You may not require outside capital - all because you're simply getting paid for the work you've already done. It tends to be overlooked by small business owners.

Deepak (13:49.332)
I'll add to that. The very first finance people we see being hired are bookkeepers because owners need to keep their books - usually to help with taxes and filings. It goes bookkeeper, then accountant, because of that first tax filing.

I'm with Steven: they hire a bookkeeper who can keep records in good enough shape for the tax person, and often the records are mediocre all year until the tax person cleans them up. Rather than worrying only about that, you want a bookkeeper who's friendly and outgoing - which doesn't sound like a normal bookkeeper - because the right bookkeeper, engaged properly, can also follow up on invoices.

Some customers pay promptly; many pay only after a reminder or two. Having someone who can help with that is valuable. Same on AP: if you want the cash cycle to work in your favor, a lot of small business owners either let bills pile up and get in trouble, or pay immediately because they don't want to manage reminders.

Having a reminder function - knowing which bill to pay when - is not typically up the alley of the person out winning deals and talking to customers. But it is up the alley of a good bookkeeper. So when hiring that first bookkeeper, look for someone who can add value now by invoicing for you (with a routine to provide them the info), following up on invoices, managing payables, and, if you're bigger with employees, handling payroll.

That's the first core area where finance starts to add value. They're literally getting the money in and delaying money out appropriately, and they're taking a lot of anxiety off the owner's mind. You want to be thinking: What does customer X need? What can I do for customer Y? That's how you want to think. Finance makes that possible.

Then, as Steven says, you get to FP&A - the planning and analysis phase: which customers are making money, why, how much, and what to do more or less of.

Steven (17:05.911)
And on the FP&A side, it's worth noting that product-line profitability isn't only the selling price less the purchase cost. You need to include all resources allocated to each product: how much time people spend on that product (salaries), and other costs - like how much warehouse space the inventory takes up and whether that means a bigger warehouse and higher costs.

So if product A sells for X and costs a third of X to purchase, it's not just X minus one-third X. You must consider all the other costs to truly understand which product is profitable and where to focus.

This is called activity-based costing - allocating costs properly by understanding details. A really good bookkeeper or someone with FP&A experience can help. It doesn't need to be a high-powered CFO at this stage.

Deepak (19:01.826)
Yeah, I also find owners themselves often really like diving into that stuff.

Helen (19:07.742)
For sure. It definitely sounds like it has to be a well-oiled machine. I'm curious - was there a moment when you realized you or someone you mentored waited too long to bring on a finance leader or bookkeeper? What happened?

Steven (19:36.259)
I can use FundThrough itself. We didn't have a CFO for a very long time. We had capable finance leaders and controllers who were strong on the internal side. Investors often said, “You should really hire a CFO.” We didn't see the value - until we did.

We reached a stage where it was valuable to hire a CFO because we were getting more complicated on the capital markets side. We'd grown a lot, had various debt facilities, needed to negotiate with banks and other lenders - lots of complexity - and we had equity raises as well.

When we hired, our eyes opened. If you hire the right CFO, the value they add is immense. In our case, the CFO had amazing contacts and experience negotiating long credit agreements and debt facilities. As a business owner, you may not have that in-depth experience. Having someone on your side of the table to negotiate with large banks and lenders (who have someone on their side) is very valuable. A CFO understands key variables - what to focus on and what's less important.

That doesn't necessarily apply to factoring, for example, because a factoring transaction is very different from a five-year lending partnership with covenants and restrictions. You want to be set up right from the beginning in the latter. When you're getting a factoring facility, it's simpler - you don't necessarily need a CFO.

But there was also a lot of internal value. Deepak recently noted that the CFO going through the audit process and financials is always looking for what could go wrong as well as how to make things more valuable. They balance both sides. As an entrepreneur, you're naturally optimistic. It's nice to have that balance at the leadership table - someone who analyzes everything from a realistic or even pessimistic side to offset the optimism. That balance creates a strong company.

Deepak (23:10.124)
I'd reinforce that, and add: early warning signs often involve payroll and taxes - and AR/AP. Those are usually the first signs you're getting in over your head.

We've had clients who tried to split payroll - paying employees net pay themselves and separately remitting taxes and withholdings to the government. Many get in trouble because they're busy winning business and forget the government fees, or drag it out, or panic. If payroll is a source of stress, it's a good indicator you need someone managing your back office. We strongly recommend a full payroll provider. Yes, you must give cash upfront, but you greatly lower the chance of serious legal trouble and reduce stress. Factoring can cover the cash gap while keeping you on the right side of the law and your employees.

Similarly with AR/AP: if customers are inconsistent in paying and you need to chase them, or you're negotiating with suppliers a lot, those are good reasons to have a finance person before you're dealing with debt covenants and facilities.

You'll be pleasantly surprised - though, as Steven mentions, it's sometimes a culture clash - that the finance person is more conservative and risk-averse than the founder. It's complementary. One plus one equals three: you can do more and cover your bases. Often, with a good finance partner, you get creative ideas and can really grow. That's when people come to us: a finance person realizes, “If we fix our working capital cycle, we can grow faster and take on that contract we turned down last quarter.”

Steven (26:32.076)
I'll add: one benefit of a finance person is that they can see the future a bit - where you're going in terms of financial health - often before the revenue driver does.

We have an investment right now that's performing very well. It's a manufacturing business growing nicely. Because it's growing so fast, it's running out of cash due to a working capital challenge. As an owner, you might think, “More customers and orders - great!” But sometimes more customers and orders cause you to fall flat because you don't have the cash to service them.

A finance professional can see that and build forecasts: “At this stage, we’ll need additional capital - maybe factoring - or we’ll tighten working capital to release cash so we can fund growth.”

This isn't just for struggling companies - it's for growing companies. As they grow, finance becomes increasingly important.

Helen (28:24.602)
Absolutely. So much rich information. Taking us to decisions about that key hire: you talked about determining the level of seniority. How would you decide whether to bring someone on fractional or full-time, specifically for the CFO role?

Steven (28:50.584)
I think it's hard to have a fractional CFO. It's easier to have a fractional finance leader - bookkeeper or even bookkeeper plus FP&A. In my opinion, a CFO is almost the right hand - the voice of reason sometimes for the optimistic CEO or founder. It's hard to do that part-time.

That person needs to understand the intricacies of the business, where it's going, opportunities and challenges, and the personalities of other leaders. That's hard to do fractionally.

So my opinion - and Deepak may differ - is that at the CFO level, it's important to have someone full-time at the table. Prior to that, it's completely reasonable to have someone fractional.

Deepak (30:11.160)
I actually think it's a bit of a U-curve. There are people called fractional CFOs, and it's not uncommon. I don't think they're offering the same thing Steven is thinking of as the full-on CFO. They tend to offer one level more sophisticated finance experience than you realize you need.

In our experience, we've brought some in to clients who had challenges. They were useful temporarily - in a turnaround, restructuring your chart of accounts, fixing books and records to get back on the right path. Fractional CFOs can be quite useful - maybe working full-time for six months, or part-time for a couple of years - bringing practices required for lenders or, God forbid, restructuring.

Where you see a lot of fractional help is at the very beginning - bookkeepers can have multiple clients. As soon as you move past the bookkeeper into FP&A - helping with analyses and forecasting - it's rarer to keep it fractional. By then, there's a high probability at least a chunk of your team is full-time.

Remember: first you hire a bookkeeper. Before long there's too much to do, so AR or AP splits out; someone does bank recs; the bookkeeper moves to other work; and you move up the chain. You may have one or two part-time roles, but once someone's acting as a thought partner, it's most common to have at least one full-time role.

Where you need something specialized, we all have a kind of fractional CFO called an accountant - we use accountants for tax on a fractional basis. Many finance problems have a technical angle - sophistication, familiarity, or contacts. As Steven pointed out, one of our CFOs had fantastic industry contacts. Those can justify bringing someone in part-time or full-time.

Helen (33:19.298)
Deepak, I think you're reading my mind - that’s the perfect segue. Share a story of when hiring (or not hiring) a senior finance person changed a company's trajectory.

Deepak (33:37.134)
I'll speak to a couple of challenging client cases that worked out well. A classic profile for our clients is an entrepreneur who's a go-getter, out winning business, with a strong grasp of fulfillment and service, but who may not love the back-office details - scheduling, payroll, AR/AP.

Given that profile, it's not surprising we sometimes find clients growing well but with a mess in the home office. We don't encourage that, because it can bite you, but if it happens, we help you work through it - providing capital to relieve stress and sometimes bringing people in.

We’ve had companies that were more leveraged and riskier than they realized. That's typical when you've tolerated a bookkeeper when you needed a controller, or a controller when you needed a CFO.

A good example: offering 30, 60, or 90-day terms without realizing that 60 or 90 is meaningfully different from 30. The longer the terms, the more risk. If a customer paying in 90 days stops paying, now you have three months of revenue at risk - often a year’s worth of profit or more. That's a simple example of risk owners take on unknowingly.

Another: trying to pay employees directly and remitting payroll taxes separately on your own timing. Very often that turns into a major mess, and the owner is personally liable - with no way out. Same with sales tax, to a lesser degree.

We've even had clients lending money to their customers above and beyond free services. One famous challenge was discovering a customer lending to their customers - that got them into a lot of trouble.

So, if there's time or uncertainty baked into what you do - and you have that little nagging voice - it's probably time to get a second pair of eyes and that complementary skill set Steven and I described.

Helen (37:28.794)
Coming from a family of small business owners and a CPA dad, that gives me anxiety even hearing it! Wild, but educational. Getting down to brass tacks of making the hire: what do you look for in the interview, and what red flags should you avoid?

Steven (37:54.829)
Great question. I'd want to understand the candidate’s previous experience and whether it matches the roles and responsibilities you expect. If someone has a lot of restructuring experience with struggling businesses but your business is growing and performing well, that may not be the best fit; they may focus on preventing risk rather than optimizing growth. The reverse is also true.

You need open communication and a positive relationship. It's critical you don't hire someone who's afraid to tell you the truth - especially in this role. They need to be able to see issues ahead and share them, even if uncomfortable. Knowledge is power: the more and sooner you know, the better your decisions.

If you don't feel that the person is comfortable sharing tough truths - or you decide you don't want to hear it - it's not a good match.

Deepak (40:02.808)
I think you've hit the most important point: that you can have an open conversation and that they bring something you don't already have. If you're good at finance and just want it off your plate, that's reasonable too.

It's not critical they've been in your exact industry, but it's extremely useful if they've been in a broadly similar one. I tend to divide the world into manufacturing (continuous flow vs. discrete), services (higher-margin, lower-volume like consulting vs. high-volume, lower-margin like staffing). They have different dynamics.

When we interview senior people, we ask them to tell us about our business - what they'd want to know to decide if it's a good fit. If the candidate asks insightful, relevant questions that make you think about your business in an interesting way, that's a great sign. If questions seem opaque, ask why they asked and what they were trying to get to.

Steven (41:59.002)
I'll add one really important point: as a business owner hiring a CFO - or even a senior controller - you want someone to take some burden off you because they have skills you don't. However, you can't outsource the entire function and not know what's going on.

We've faced clients whose CFO made big decisions and the owners had no idea. At the end of the day, it's your company. There's a balance: you don't want to micromanage, but you need to “taste the soup.”

Set up the relationship: cadence of touchpoints (maybe multiple times a week) and decision thresholds - types of decisions they can make versus those you discuss, so you're informed or making final calls. Hiring a senior finance person doesn't mean you can wipe your hands of it. Your name is on the proverbial door - and on the tax return.

Helen (43:40.462)
Yeah, that alignment is critical. One more meaty question, then a lightning round. What is the hardest finance mistake you've had to fix - or seen a peer fix - without finance leadership in place?

Steven (44:10.051)
I think we've covered it: not knowing the cash position of the business until it was too late - whether growing too fast or effectively borrowing from the government by not paying remittances. Not having a grasp of cash today, tomorrow, next month, next quarter, and next year - we've seen it too many times, and it's avoidable.

Deepak (44:46.124)
I agree. Cash and taxes - those are the two biggest issues we've seen.

Helen (44:55.876)
Definitely avoidable issues - especially taxes. All right, lightning round of FAQs: Should I hire a CFO before or after my next fundraising round?

Steven (45:16.053)
It depends on the size and stage of the company. If you're raising $100 million, I'd say have a CFO beforehand. If you're raising a million dollars, you might not need a CFO at that stage.

Helen (45:39.598)
Do VCs or banks require startups at Series A to have a CFO?

Steven (45:45.721)
Absolutely not. In fact, they might look negatively on spending money on an expensive CFO at that stage.

Deepak (45:54.168)
Yeah.

Helen (45:56.634)
Will I hurt my chances of raising if I don't have a finance leader in place?

Deepak (46:06.775)
It depends on the size of the company, as Steven said.

Steven (46:08.919)
It would probably hurt your chances if you didn't have someone who can do proper analysis during diligence. It could be the owner, but it's probably someone else. It doesn't have to be a senior person - just a really bright analytical person.

Helen (46:40.408)
Right - it's a task that needs to be done; it doesn't necessarily need to be a senior person. All right, last one: three takeaways you want CEOs and business owners to remember when making that key senior finance hire?

Steven (47:08.505)
One: think of that senior finance hire as value-adding, not just a cost center.

Two: cash is key - this person needs to manage and forecast cash; it's the engine of the business.

Three: if you don't feel personal camaraderie with that person, it's probably not right. You need someone who can have uncomfortable conversations and feels comfortable telling truth to power.

Deepak (48:00.588)
Those are good. I'd add: if you're a CEO/founder who's good at getting business, don't underestimate the complementary value of someone who keeps the home front stable and running.

And think in three steps: (1) simple reporting and taxes (bookkeeper), (2) FP&A - analyzing which customers, offerings, products, or services make money and dealing with cash flow (controller), and (3) fundraising and external financial relationships (CFO). Roughly: bookkeeper → controller → CFO.

Helen (49:06.414)
Thank you, Steven and Deepak. This was such a rich, educational discussion. I know our listeners are going to love it. Thank you for listening to Cash Flow and Tell from all of us at FundThrough. We hope this discussion gets you one step closer to growing the business of your dreams. We'll post the key takeaways in the show notes, and we'll see you next week.

Deepak (49:32.174)
Thanks, Helen