As the bear market is upon us, what is top of mind for many crypto startups is the need to buckle down and conserve cash while still continuing to drive business forward. When cryptocurrency businesses are in their startup phase, it can be hard to forecast cash runways, especially if none of the leadership team have backgrounds in finance. Hiring a CFO can provide excellent insight for growth and strategy and give you plenty of assistance in navigating the fundraising and operational processes.
Unfortunately, startup founders are stuck in a catch-22 – full-time CFOs cost money, yet in a bear market, cash conservation is critical. With CFO salaries starting at around $300,000, footing the bill for a big hire like that can make founders nervous. For many startups, new hires that aren’t revenue producing or dedicated to product development or support may seem like a waste of cash.
Despite the investment, there are some significant benefits of hiring a CFO in a bear market and alternative options if a CFO isn’t in the budget.
Crypto CFO Responsibilities
In order to determine whether startups need a CFO, they need to understand the role that one would play. While specific responsibilities can vary from business to business, the general job responsibilities are relatively universal. Crypto startups often hire an experienced crypto CFO if they don’t have someone to:
- Perform forecasting and financial modeling to understand cash runways and the timing of the next fundraising rounds.
- Direct all cash management, insurance, budgeting, financial reporting, and other financial processes.
- Collaborate with the leadership team and model out the company’s financial strategy and determine hiring needs to reach goals.
- Continuously develop controls, processes, and accounting systems.
- Oversee the day-to-day accounting and finance activities to ensure that cash flows are sufficient for operations, including recording, reporting, and controlling internal systems.
- Manage and establish relationships with banking partners and evaluate and advise on financing rounds.
- Set up an efficient infrastructure that is scalable for a startup’s expected financial growth.
What Value Does a CFO Provide to a Startup?
A strong finance function goes beyond just managing bookkeeping and taxes. Often CFOs are confused with a CPA or regular accountant. Crypto CFOs, understand tax and accounting concerns of growing startups and focus on the bigger picture and a more forward-looking strategy. Beyond overseeing the accounting function and daily transactions like accounts payable a CFO can bring a lot of value to cryptocurrency startups through financial planning and analysis.
CFOs in crypto startups are often tasked with setting up the finance and accounting function and selecting the right crypto accounting systems, tax, and audit firms, and generally manage the company’s finances. In their earliest stages, crypto startups opt not to have a CFO. They often have someone on the leadership team that has a strong finance background that can provide the financial insight to grow companies quickly. CFOs in this bear market are tasked with keeping their companies from having cash flow problems and navigating the company through the process of financing and fundraising.
In addition to forward-looking projections, CFOs analyze financial statements and establish Key Performance Indicators (KPIs) with the founders to measure performance and drive the business forward. This data can, in turn, allow them to create a plan for improving profitability and minimizing cash burn. A CFO is often a strong and impartial voice on a company’s leadership team.
Crypto CFO Alternatives
DIY (Do It Yourself)
Founders of crypto startups may not be able to afford a full-time CFO. Conserving their scarce resource of time and money, they often opt not to hire a CFO, rather, they pick one of the founding members to step into this role. However, taking on those responsibilities can quickly become overwhelming and many owners find themselves struggling to keep up with the demands of regulatory and accounting guidance when managing their crypto finances. While the DIY option of managing crypto finances may not be sustainable, there are a few other options for crypto startups to get guidance managing through a bear market.
Crypto Tax Accountants
Crypto startups can rely on their tax accountants for advice. Crypto tax accountants have the benefit of working with many different crypto startups and can share best practices for conserving cash, reducing taxes, and evaluating financing options. They can also help with structuring entities and providing guidance on how transactions need to be recorded. While they may not build out detailed financial models, they may assist in financial projections for tax purposes which can give some visibility into cash flow runways as well.
Many startups are backed by a bunch of investors who are willing to assist and who are vested in seeing their portfolio companies succeed. While many advisors may not be able to provide guidance on tax or accounting issues, they are a good resource for strategic advice in navigating the market. Many may provide assistance in financial projections or insights into market trends they are seeing and can help drive assistance to move businesses forward.
Collaborate With Peers
The crypto community of founders can be a wealth of information. While many are focused on building their product, many startup founders are navigating the same challenges of managing cash efficiently while juggling many other priorities. Founders can tap into their network and learn what hacks their peers are using to manage their finances, projections, and accounting.
Crypto Accounting Software Companies
Some crypto accounting software companies offer support packages to get a crypto startup’s accounting up and running. While these software companies will focus on the tactical crypto accounting side of the business, it may be an option for startups looking to get some basic advice and knowledge. These software companies can handle the tactical accounting side, but knowledge of accounting regulations and how to record transactions aren’t always clear. Crypto accounting software services aren’t in the business of consulting, and won’t be able to model out cash runways and scenario analysis like a CFO can, but they may be able to provide some technical accounting insight around crypto bookkeeping.
Outsourced Fractional CFO
While full-time CFOs can mean a big investment, outsourcing to a fractional CFO might be a more cost-effective option. Without the burden of full-time costs of taxes and benefits, crypto startups can tap into the expertise of a seasoned CFO. Fractional Crypto CFOs provide outsourced services for multiple companies and bring a wealth of knowledge from those different experiences. They can assist in setting up an accounting function, collaborate on strategy, do the financial modeling and be a sounding board for the company’s leadership team. Some outsourced CFOs are part of a broader outsourced team that can handle your crypto bookkeeping and accounting as well as provide CFO services.
As we enter the bear market, crypto companies have some big challenges ahead. Fundraising may not be as easy as it was just a few months ago, due diligence pressure on deals will increase, cash needs to be conserved and leadership teams are under pressure to get products to market faster and get to revenue generation as soon as possible. They need to do this all while both driving growth and managing their business’ finances and cash runways. While hiring a full-time CFO might not be in the cards for many, the most successful leadership teams will be resourceful in navigating without this role. One way they can do this is by tapping into the resources above.