The Venture Capital CFO's Guide to Scalability & Sales

Megan - 00:00:18: Today, my guest is Rick Smith. Rick is a five-time CFO with a background spanning a variety of industries, including SaaS software, education technology, healthcare services, advertising, marketing services, and retail. Having been a controller, FP&A leader, and CFO, Rick is deeply knowledgeable in all areas of accounting and finance, including day-to-day accounting and processes, financial systems, buy-side and sell-side M&A, financings, capital raises slash recapitalizations, and international operations. Rick founded Bonfire Advisory, a fractional CFO practice focused on supporting Series A and B software and services companies, including SaaS software and healthcare services. Rick, thank you very much for being my guest on today's episode of CFO Weekly.

Rick - 00:01:40: My pleasure. Thank you.

Megan - 00:01:41: Yeah, today we're going to be talking about your new book, Demystifying the Role of the CFO in venture and growth stage companies. And I'm super excited to have you back on the show and sharing some information on this book. So let's jump right in.

Rick - 00:01:56: Sounds great.

Megan - 00:01:57: So just so that we have some background, and I know you've been on the show before, but maybe people listening have not heard that episode. So can you just start by kind of giving us an overview of who you are and what you've done?

Rick - 00:02:11: You bet. I have been a CFO for much of my career across industries, across stages, so venture and growth. On the low end, maybe $20 million in revenues, and on the high end, up to $300 million in revenues. And about two years ago, I left CFOing. I had been a CFO with five different companies. I left CFOing to start my own fractional CFO practice, where I work solely with generally Series A, Series B companies, either SaaS software or health tech or tech-enabled service companies.

Megan - 00:02:44: And having had an extensive experience across various industries, you've seen the role of the CFO evolve over the last decade or two. So what would you say is the most surprising change that you've observed in the CFO's responsibilities over the years, particularly in venture and growth stage companies?

Rick - 00:03:02: Yeah, so back in the day, the role of the CFO was primarily focused on accounting. And cheap computing and improved tools for automating, gaining insights from analyzing large amounts of data has really broadened the CFO's role, as did the increased focus on growth brought about by the prevalence of ownership of companies by venture capital and private equity firms. So over the last several decades, the number of publicly traded companies has been cut in half, while the number of private equity funds has grown probably four or five X. And when private equity firms invest in a business, they expect the CFO to play a strong role in helping drive returns on their investment. In the case of what's changed in venture, I would say a key change I've seen over the last 24 months has been the emergence of the fractional. I set up my fractional CFO practice two years ago, and it turns out I was on the forefront of a broader trend. Now tons of people are hanging out their shingles saying, hey, I'm experienced and can help you on a part-time basis, which makes tons of sense for early stage companies. Companies at that stage probably don't have enough work for a high-end full-time resource and probably can't afford one, but they can afford to utilize part of one. Prior to this, most early stage companies most likely tried to get by without a CFO, and I'm sure they made tons of mistakes in doing so that eventually had to get fixed. And so from what I've seen, the rise of the fractional has really changed this.

Megan - 00:04:23: I think you were the first fractional CFO that I interviewed. And since our interview, it's definitely become kind of a commonplace phrase, fractional CFO.

Rick - 00:04:34: Yeah. And not only CFOs, but I'm seeing fractional everything. And again, if I were starting up an early stage company, I would lean heavily on fractionals. I think it's a good move.

Megan - 00:04:44: And your book, Demystifying the Role of the CFO in venture and growth stage companies, offers a unique perspective on the CFO role in venture and growth stage companies. So what inspired you to write this book? And what do you think is the most misunderstood aspect of the CFO's role in these early stage companies?

Rick - 00:05:02: Yeah. So when I first became a CFO almost 20 years ago, there were things that I walked into the job knowing. But in many areas, I truly had no roadmap. So I had to figure things out on my own. Sometimes I figured things out. And sometimes, honestly, I made mistakes. And I learned from them. But that's not awesome. And after a while, I said, geez, I wish there was a book that could give me some sort of guidance on this kind of stuff. And I looked around. Like, I cast a pretty wide net. And I couldn't find anything like that. And so I just said, all right, if there's not a book, I guess I'm just going to start writing. And maybe somebody else down the line can benefit from everything I've either learned or stumbled through. I wanted the book to be extremely practical, not a bunch of soft, squishy, theoretical or generic commentary. And it had to be easy to understand and fun to read. And people might be saying, a business book that's fun to read, impossible, right? I think I did a good job at making it fun to read by, first of all, using straightforward English to explain everything. I really try to stay away from accounting and finance jargon. And then I pepper the book with fun and sometimes hard-to-believe stories from my career. And I would say anybody who's been a CFO for 20 years has a boatload of hilarious and crazy stories that are probably hard to believe. And I include a lot of those in the book. Honestly, I'm not going to make any money from writing this book. That's not at all why I did this. In writing it, I had no agenda beyond trying to help prospective CFOs learn the foundational skills of the job. And I also think there's big value for founders and folks who are earlier in their PE or VC careers in reading it. So listeners, my book, Demystifying the Role of the CFO in venture and growth stage companies, is available on Amazon. Buy it, read it. And if you have questions, drop me a message and I'll be glad to chat with you about anything in it. But anyone who works in business and is curious about how businesses are run or how M&A works or international expansion could benefit from something in this book. And I had a CFO who finished it. He messaged me and he said, this should be required reading for every first time CFO. And I can't tell you how happy it made me to get feedback like that. Regarding your question, I think the most misunderstood thing is because early stage companies are small, people think being a CFO for companies at that size is easier than being a CFO of a company larger in size. I've been both. And let me tell you, that's not true at all. In each case, the game sounds the same, but the skill sets you need to bring are a bit different. So an early stage CFO has to bring deep expertise in so many areas. You don't have a lot of budget to work with, but you still have to move mountains. You have to think through your platforms, not only for now, but well into the future when you're 10 times larger. You have to invent processes from scratch, and you often have little to no staff. So to give you a sense of scale, as a fractional CFO for venture-stage companies, most of my clients have one accounting staff, and I'm the FP&A department. So you have to do a lot with very little. I've seen lots of big company people join early stage companies and fail quickly. Working with early stage companies is a skill set of its own, and just because you worked at Google or Facebook or Ford Motor or UnitedHealth in a division finance role does not mean that you will be good at this.

Megan - 00:08:11: And in the book, you discuss the vast range of responsibilities that CFOs and venture-backed companies must juggle. So how do you prioritize these duties? And how do you recommend new CFOs navigate the sheer breadth of tasks that they need to manage?

Rick - 00:08:26: I hate to say it. You can prioritize all you want, and you certainly need to. But no matter what, at the end of the day, a long list of stuff all still needs to quickly get done, and it needs to get done to a high standard. If you want to be successful as a venture-stage CFO of rapidly growing companies, you've got to be good at 20 things, you've got to manage them all simultaneously, and you've got to move quickly. That being said, if you forced me to prioritize, I would always say we have to get our operational and accounting data set up correctly as a foundation so we can understand what's happening with the business and if or when we might run out of cash. It's kind of an important thing to know. I would use that data to build out a comprehensive forecast, not just P&L, but also P&L balance sheet and cash flow so we have a good feel for when we might run out of cash. And all this stuff is what a CFO lives and dies by, and it's what the investors will demand. You and the CEO then use that forecast to make 50 decisions, and you've got to build out a forecast that is accurate and that works. Also, to be successful, you do need a couple of really good hires. And because you won't have a lot of staff, just one or two good hires can help you move the needle big time. And you have to keep those people happy and motivated because the stress level will most likely be high. Once I find the right people who are good at this stuff, I do whatever I can to hold on to them forever. I'm telling you, not everyone is meant to work at this stage. People glamorize it, and it just doesn't work for everyone. Some people envision what it's like and find out reality is very different. Some love bringing order to the chaos. Find the people who love bringing order to chaos. Keep them happy and reward them. I happen to love this type of work, and I find the work to be very interesting.

Megan - 00:10:04: Yeah, and I'm sure no matter how much you prioritize, there's so many things that are thrown at you throughout the day that probably didn't matter to begin with.

Rick - 00:10:12: Yeah, it's a broad role. And at the venture stage, most CFOs aren't just overseeing accounting and building out FP&A, but they're often overseeing HR benefits and a payroll. And you've got to make sure payroll's getting done correctly and facilities if you have facilities, if you're not virtual. It's just, it's a very broad role that when you're CFO of a larger company, often you're just focused on finance and accounting.

Megan - 00:10:34: And growth stage companies often face evolving financial complexities as they scale. So how do you advise CFOs to adapt their financial strategies to meet these challenges while still maintaining financial discipline and control?

Rick - 00:10:48: That's the hardest part is thinking through and setting up the scalable systems well before you scale and also having a team that you can scale with. So crappy small time systems will hold you back. And the larger you become, the harder it is to swap out systems. And you have to design the systems to be flexible enough to accommodate for new products and new markets and potentially for international markets, which if you go international, it truly is a whole different ballgame. Your team, it's really the same. If you have people who are unwilling to implement and learn new systems, they will hold you back. You will eventually need to upgrade and you can't be afraid to upgrade talent because waiting to deal with the talent side will hold you back. At the end of the day, you'll be as successful as the data and insights. You'll be able to quickly and accurately provide both to leadership and as well as to your investors. And if you can't provide accurate data and insights as to what's going on in the business, you're not succeeding and the business will struggle to succeed. And you'll struggle in the role.

Megan - 00:11:44: I'm just curious, how do you set up a startup? Like what are some of the flexible systems that you've come to enjoy working with?

Rick - 00:11:53: So it's kind of funny. I hate to say it. Most early stage companies on the accounting side, you're kind of stuck right now. Most are on QuickBooks, which is a very dated product that I do not love. And I can spend a long time speaking about QuickBooks' shortcomings. And I'm actually shocked that they haven't done a better job at trying to upgrade and update it. I think what's hard is on the accounting side, I do think that there are people who are starting to pay a lot of attention to trying to create a better mousetrap versus QuickBooks. And so I think over the next couple of years, we'll see better products. For me, in an absence of that, I'm always focused on how can we get the most out of QuickBooks? And if we can't get a lot out of it, then do we start to think about upscale platforms like an Sage Intacct or a NetSuite? Unfortunately, those are a lot pricier than a QuickBooks. Where you can benefit, though, are some of the tertiary products that have evolved that are a lot newer and better. Things like Ramp or Bill.com. If you're going to hire freelancers throughout the world, there's some great international PEOs who can help you out with stuff like that. So I usually use those to help kind of supplement what I'm not getting from other available platforms. What also can be helpful, which if you're kind of an early stage company and you're not doing this, you're crazy, and that is to use a PEO on the payroll side. A PEO goes much, much further than if you're doing payroll in-house using a platform like an ADP. And so finding a good PEO to pair up with will help you not only on the payroll side, but also on the benefit side.

Megan - 00:13:16: And one key theme in your book is that traditional MBA programs don't fully prepare CFOs for the demands of startup and growth stage companies. So what, in your opinion, are the most critical skills that aspiring CFOs should focus on acquiring and how can they gain practical experience outside the classroom?

Rick - 00:13:34: It's hard. So not to denigrate MBA programs because I went to a top MBA program, but a lot of what you will learn will be a little more theoretical and less practical. So I encourage people, I'm not just trying to push books. Seriously, read my book. You won't find the stuff I walk through in MBA programs. And I do get very hands-on. And again, so much of what I learned in my MBA program was theoretical. And I'll give you an example. And honestly, I could give you tons of examples. But I taught a session to a top-tier MBA programs accounting class about what a CFO does. And one item I mentioned is that when you're doing M&A, you can review audits from the target and internally prepared financials. And that's great. You should do that all day long. But I threw this out. I said, the real value comes reviewing a QOV of the seller. And a QOV is what's called a quality of earnings study. And what surprised me, although maybe it shouldn't have, is the professor asked me what a QOV was because the professor had never heard that term before. So a QOV, again, a quality of earnings study, is usually done by the arm of an accounting firm. And it's basically like a mini audit of the target you are looking to buy. But it goes way beyond just the financials, often combining operational details with the accounting data to tell the story of what's been happening at the business over the last several years. And also, the QOV firm will provide adjustments to the financials that the seller provided to adjust for non-recurring things that happened or incorrect accounting. So you can get a good feel for what the true earnings of the business are versus what was shown in the financials. And a good QOV is written in a way that truly tells the story of a business. An accounting academic might never have encountered a QOV, but anyone who has done any amount of M&A certainly has. Any deal of even a moderate size involves a QOV. So that's an example of what academics won't teach you, but practitioners will. What truly helped me in my career is that I started off on the FP&A side. And even though I wasn't a CPA and didn't have a true accounting background, I then moved to the accounting side for a long time. So I learned how everything works at a micro level. And then I moved back to the FP&A side and eventually became a CFO. Going from FP&A to accounting isn't the most common thing. A lot of FP&A people are probably afraid to do accounting where they think they'll find it boring. I actually loved it and I learned a ton doing it. Some folks who come up solely on the accounting side are less good at the modeling and the clean sheet thinking that enables you to be successful at FP&A. Some folks who come up solely on the FP&A side can't speak fluently in accounting, which to me, accounting is the language of business. And they don't truly understand all of the steps that occur from when a customer order is placed to when services are performed to when cash is collected from the customer. And it really helps to have worked on both the accounting and FP&A sides. That gave me a tremendous background when I went to become a CFO. But the hard part is, again, there are so many nuances to the role of being an early stage company CFO that I didn't learn until I got into the job. And it's just, it's hard to get exposure to things like how do leases work or negotiating healthcare benefits or whatever. It's hard to get that exposure. And again, that's really one of the key reasons I wrote the book. The other thing is, and I mentioned this earlier, if you've only worked at large companies, you may not be successful as an early stage CFO. Large company people often see a narrow portion of the job and they function more as coaches than player coaches and they don't learn the details. I've seen lots of big company finance people show up as the CFO of a venture stage company and quickly realize that they don't have the foundational skills to do the job. And you know when they took the job, they thought it would be easy. They thought, oh, this is so much smaller than where I've been operating. This is going to be super easy. It may be smaller, but the type of work you have to do is very different.

Megan - 00:17:23: And back to the topics of M&A, or back to the topic of M&A, mergers and acquisitions, they play a significant role in the growth of many companies. So what are the key financial aspects a CFO needs to consider when evaluating a potential acquisition? And how do they balance this with the company's overall growth strategy?

Rick - 00:17:41: So first, I'll throw the thing nobody ever wants to hear on the table. There have been lots of studies that show that the majority of acquisitions result in negative value created. So from a CFO perspective, all I'm ever focused on is how can we turn the odds in our favor? You will never be 100% successful at M&A. And you get it to be 75% successful or 80% successful. That's the goal. So the M&A chapter in my book is by far the longest chapter. It's 20 to 25% of the book because there are so many variations to M&A. Small deals differ from large deals in terms of how you do the diligence and how they get done. Buyer-sourced one-on-one transactions where you're going to buy a company and you approach somebody and say, hey, I'd like to negotiate with you to buy you. That is very different than when you're buying a company through what's essentially a giant auction conducted by an investment banker. So that's really what I try to explain in that chapter of the book is all the nuances of doing smaller deals, larger deals, and what can you do to turn the odds of success in your favor. When I'm buying companies in a one-on-one situation and there's not an investment banker involved, these are usually going to be smaller companies, probably sub-10 million in revenues, maybe sub-20 million in revenues. In these situations, if you have the right seller, you have the time to really dig in and review the financials at a detailed level by customer and by expense category so you can get a good feel for where you'll have opportunities for synergies post-deal close. Keep in mind that the accounting of smallish companies is often super small-timey, so you have to be tenacious to try to figure everything out. I actually love these situations and enjoy on an almost forensic basis trying to make sense of the accounting of some of these smaller businesses, trying to figure everything out. And my goal here is to understand all of our downside risks and where the synergies are so we don't overpay. And then also that helps me formulate my post-close game plan in terms of how am I going to consolidate operations and as quickly as possible get to the synergies that we need to for the deal math to have made sense. And these types of deals, I feel like I'll know maybe 80% of what I'm getting myself into when the deal closes, which means that the deal most likely will be a financial success. I'll be honest, I enjoy less when I'm part of a large auction that's conducted by an investment banker because, and I know this sounds funny to say it, it's just like buying something on eBay and you often end up overpaying. You have limited information. You have limited access to data. You only really get to see a lot of times what the seller is willing to provide. And you often have very short timelines to get all the information you want and to get all the questions you have answered. In these deals, when the deal closes, I feel like I'm lucky if I know 60% of what I'm getting myself into, which means the likelihood the deal will be a financial success is lower. And certainly more things I hadn't anticipated will pop up after the deals close, which is unfortunate. That being said, I've done some acquisitions that were truly transformational for the business. So even though I know M&A is risky, and even though I know a lot of M&A leads to negative value, I'm all for buying companies if the deal looks right and makes sense.

Megan - 00:20:58: And your experience spans multiple industries, including SaaS, healthcare services, and retail. So how do the specific financial needs and challenges differ across these sectors for CFOs? And what universal principles do you believe every CFO should follow?

Rick - 00:21:14: So most of the complexity when spanning industries comes in a few areas. Number one is understanding how the revenues truly work. Number two is understanding the key metrics that you should use to manage the business. And number three is understanding the cash flow cycle. In most cases, the expense stuff, which in the areas that I focus on, most of the expenses are in two buckets, payroll or technology. That's typically fairly consistent from industry to industry. That being said, a good CFO will also want to understand which expenses you can get scale over and which will grow at a similar rate to company growth. And this is going to vary considerably from industry to industry. So really understanding where your scalable areas are is important. SaaS is a bit of a unique animal, and the Revenue Recognition, particularly under the 606 accounting standard, has some nuances that you really do have to understand if you're going to record revenues correctly, and that's kind of a big deal. That being said, in most of SaaS, people are less focused on revenues and they're more focused on ARR, the annual recurring revenue. And so you've got to be able to dissect your ARR. And your ARR can vary considerably from your revenues, especially if you're a high-growth company. Investors or buyers will most likely want what's called a customer cube, which is essentially a database that lays out by customer what your ARR trends are, including churned clients, new logos, upsells, downsells, volume increases or decreases, et cetera. If you have thousands of clients, this becomes a very complicated exercise and it's got to be done accurately. You'll have to move off of spreadsheets and onto something better. Often, the best move is to build some sort of database fed by your existing systems to populate the customer cube. The good news with SaaS is that the timing and billing and collections can be very predictable, making cash flow forecasts easy. And that's one of the many reasons that VCs and PEs love these businesses. Conversely, for a whole different flavor, I've worked with a lot of tech-enabled healthcare services companies, and those are tricky. Their revenues are generated typically from patient billing of claims to insurance companies. I can't tell you how tricky this is, and it requires a ton of expertise. If a company was going to hire a fractional CFO in this area and the fractional CFO didn't walk in the door with a ton of health insurance claims kind of background, I would not hire them. A lot of nuances. So let's start at the beginning. The claims are initially tied to CPT codes, which are codes specific to each procedure or service that a patient receives. And the amount that can be billed per CPT code varies depending on if it's commercial insurance or Medicare or Medicaid. Is it fee-for-service? Is it value-based care? Whichever entity is billing the insurer has to have a relationship and agreed-upon pricing with that specific insurer. All of this has so much complexity because you're filing thousands and thousands of small claims that have to be submitted, tracked, and followed up on. Claims get rejected, so there's additional follow-up. And because the claims are often for low dollars, the minute a claim gets rejected, you're probably going to lose money on that claim the minute somebody has to take the time to resubmit it and follow up on it. So as you can see, tons of complexity. And making it even more challenging is the cash flow cycle isn't the most favorable cash flow cycle. The health-providing entity is paying staff and rent, but they're probably not going to collect on these claims for 60 to 120 days. Or if the claim gets rejected, maybe never. And it's unlikely that you'll collect 100% of the claims that you file. So you're probably winning if you're collecting 95% of your claims or maybe even 90% of your claims. All this leads to a super tricky cash flow cycle, but it highlights how important it is to have good financial kind of leadership that can accurately forecast all of this stuff. So as a fractional CFO, I stay focused solely on what I have expertise in. Series A and B, software or services businesses that are usually either SaaS software or tech-enabled services. And I do have that unique niche that I'll handle healthcare stuff. I will turn down anything outside of that because I won't bring as much expertise as somebody else might. And I definitely want the business to have the right talent to manage all this financial stuff.

Megan - 00:25:20: Yeah, that's kind of the beauty of the fractional role too, is that you can pull in experts. Absolutely. And in your book, you share real world stories and lessons from your experience. So can you share one of the most challenging or unexpected situations that you faced as a CFO in a venture-backed company and how it was resolved?

Rick - 00:25:41: Yeah, I'll be 100% honest. This example happens to me all of the time. A company engages me to help them with raising an investment round. And usually that's going to involve me building out their long-term kind of financial model, like an investment bank or quality financial model representing the business, helping them with the data room, helping them with any raised X that they're going to use in the process, and really guiding them and hand-holding them through the process. And the venture company will swear to me that their accounting is done well. And then I show up and I figure out that their accounting is a mess and the founder or CEO had no idea. And so then the challenge becomes we have to simultaneously prep for the capital raise, which is a big job in itself, while doing an accounting reclamation project. Fixing accounting is time-consuming. It's non-value-added, and it usually takes a while because I'll have to bring in a fresh set of people to fix it, and they'll have no context on the business. So we're simultaneously trying to fix years of accounting while prepping for a capital raise. Again, this happens all the time, and it's a very, very difficult situation to walk into. My advice is for companies, even at early stages, to make sure that their accounting is done to a good standard. Honestly, it's not that hard. Find the right people, be they in-house folks that you hire or fractionals, but make sure your accounting is correct heading into a capital raise. And by the way, if you're a founder or CEO and you're not keeping a close eye to make sure that your accounting is done to a high standard and is persistently being reviewed, you're making a huge mistake that could eventually blow up on you. Even if you have zero interest in this kind of stuff, and honestly, most founders I know have zero interest in reviewing accounting, you must pay close attention to it.

Megan - 00:27:18: And a lot of what you've written about in your book is managing the boring yet crucial aspects of the CFO role. Things like taxes, payroll, facility leases. How do you ensure that these areas are handled efficiently while still keeping a strategic eye on the company's financial health and growth?

Rick - 00:27:36: Yeah, unfortunately, the reality is that founders and CEOs and investors, they want the CFO to focus on the stuff that moves the needle. And the other stuff, it still has to get done and it has to get done to a high standard. So on the people and the payroll side, it certainly helps if you have good HR and payroll people that you can lean on. And what I typically find is the good news is that once you get the boring stuff set up well, and if you have a few good people on your team to lean on, once it's set up well, a lot of it will run itself with the CFO consulting on it here and there and consistently reviewing it. So for me, it kind of is to get back to the Ron Popeil thing, a set it and forget it thing. But you got to get it set up right from the start. Dealing with the boring stuff, the truly boring stuff, the corporate taxes, sales and use taxes, stuff like that. It can be really, really hard because the rules vary by state and the states change the rules over time. And the problem is, is that this stuff actually is a big deal. And usually when it comes out that you've been doing this stuff wrong is in two cases. One is a state reaches out to you and says, hey, we think you owe us a bunch of taxes. Or the other is when you go to sell the business, a buyer is going to do an in-depth review of how you're treating taxes. And it's very possible they're going to say, hey, wait a second. You should have been charging sales and use taxes all along and you haven't been. And your exposure is a giant pile of money. And that makes us nervous to buy your business. The challenge you have, especially when you're small, is doing a state-by-state assessment of how you should be treating your taxes. It's costly. It's time-consuming. But at some point, you probably have to make an effort to lay out a matrix of what your approach is on a state-by-state basis, product-by-product that you're selling, or service-by-service that you're selling. Because some products and services are taxable and others aren't, and that varies by state. Again, this is not glamorous or value-added stuff, but it must get done. And if you go to sell your business and aren't approaching sales and use taxes and corporate taxes correctly, that will create big problems during a transaction. Payroll is the same story. I always say nobody thanks you for getting them paid. 999 times consecutively paid correctly. But if you screw up number 1,000, they'll never forget it and they'll never trust you again. The good news with payroll is if you have a good PEO or a good payroll processor and some good payroll staff, that goes a long way. That being said, individual states have different rules for stuff like overtime, holiday pay, what you're required to reimburse employees for, etc. And messing up payroll taxes is a real big no-no. You don't want to do that. Also, many companies liberally use contractors in ways that states or the feds would say the contractor is actually not a contractor. They're more like an employee, which means, company, you should have been charging payroll taxes and remitting those back to us. So when a CEO looks at you and says, hey, we're going to have a new policy. We're going to hire anyone, anywhere. We're going to hire the best talent no matter where they're located. That's fine. And a lot of companies choose to do that. But keep in mind, the back office complexity just went up. Or let's say a company said, we're not going to have any employees. Everyone will be a contractor. Well, that could turn out to be a real headache. So often your best moves are as a CFO, you need to know the rules. You need to partner with good payroll partners. If you can find great payroll people, overpay them and retain them and make sure you have a good process. The one that people never think about, which is a CFO, is frightening our facilities leases for new space. So let's say you decide your company is going to build out a new space. And let's say it's pretty large. If you've never handled a major facilities build out, find someone to give you guidance. And please read the chapter in my book on this topic. Millions of dollars are at stake. Leases have lots of unique details. And costs can spiral if you're not careful. And because most new leases for new space lock you in for 7 to 10 years, you'll be stuck with any mistakes you make for a long, long time. Most businesses truly have a hard time forecasting beyond the next like 24 months. But you're going to sign a lease on space for 7 to 10 years. One of the things you need to think about up front, and I know this sounds silly, but you really do have to understand what all of the costs will be. And most people would say, well, geez, how hard is that? Well, the total costs include the rent, property taxes, common area maintenance that the landlord will charge you, parking, the build-out costs, which there's so many aspects to a build-out. There will be vendors and invoices everywhere. Furniture, technology, there's so much to it. It's very hard to get your arms around what the total cost will be. And also, you need to know when cash will be going out the door, especially if cash is tight. And these are very hard projects to just deal with. So seriously, read my chapter on leases. It does a great job explaining everything, including strategies you can use to minimize your risk. So let's say you go into a major build-out with zero experience. Everyone will be looking at you like you're the dumb money at the poker table, and costs may spiral.

Megan - 00:32:36: And venture and growth stage companies often experience a lot of volatility, and as you said, they're not for everybody. So how do you recommend CFOs stay adaptable and make decisions under uncertainty, especially when there are limited resources and high stakes involved?

Rick - 00:32:53: Yeah, rapidly growing companies always make the same mistake. They hire people and they lease space too far ahead of the growth curve. And then when things don't work out on the revenue side, they lay off a bunch of people and are stuck with a bunch of empty space. This happens way too often. And you read about stories in the press all the time about companies who just hired 500 employees. Now they're laying off 500 employees. And it's hard because so much of it comes down to the forecast and understanding what may happen in the future. If the CFO is doing a good job forecasting and in the businesses I operate in, software and services, usually the hardest part is forecasting the timing and size of new client wins as well as when client churn might occur. But you've got to gate your hires to match up with your revenues. And so for me, separating out what I know is going to happen, what I think might happen and what could possibly happen if we get lucky, I have to separate those out, probabilitize them and think very closely about what do I truly believe will happen. And then I have to do my best to counterbalance the animal spirits among the leadership team that are pushing us to hire ahead of the curve. There's always an inertia to hire. You have to do your best to counterbalance that inertia and only hire to what you feel very confidently will happen. When it comes to facilities leases, don't sign a long-term lease until you know you have major traction. And in the interim, get by either working remotely, using co-working spaces, or subleasing somebody else's mistake. If you do decide to do a major build-out, try to negotiate early out clauses into the lease, which most landlords do not want to do, but try to negotiate that. Or the favorite one of mine, which founders or CEOs hate, design the space so that you can easily carve off or sublease portions of it in a downside scenario. Nobody wants to plan for that ahead of time. But the reality is, is that when you're designing a space, you can design it in ways that if things don't unfold like you planned, it's a lot easier to carve off this section or that section and sublease it.

Megan - 00:34:57: That's really great advice. And last question, but looking ahead to the future of financial leadership, how do you see the role of the CFO evolving in the next 3, 5, 10 years?

Rick - 00:35:09: Yeah, more and more, the CFO role is a combination of accounting, finance, data, and systems. And this trend is going to continue. I also think fractionals are just going to become a bigger and bigger source for early stage companies to bake in top talent on an as-needed basis. The software does get better and better, which is helpful. We talked about this earlier. Stuff like Bill.com or Ramp or global PEOs for hiring international employees like Remote.com. All of these things have been super helpful to me, and I'm guessing we'll see AI improve some basic accounting functions, but we'll have to see how AI plays out. From my standpoint, it's still a bit early to know where this is going. But I will say this, as much as I love new technology, always keep in mind that throwing tech at broken processes and bad data never helps. You can't implement tech unless you have good foundations that will never change.

Megan - 00:35:56: Rick, thank you so much for being my guest today.

Rick - 00:36:00: Hey, I've really enjoyed this. Thanks for having me on once again.

Megan - 00:36:02: Yeah, I've really enjoyed speaking with you. And thanks for finding the time to be here with us today to share your experience and knowledge. And I hope that all of our listeners will buy your book and read it.

Rick - 00:36:13: Thank you, Megan. I appreciate it.

Megan - 00:36:14: And I wish you all the best. And to our listeners, please tune in next week. And until then, take care.