March 23, 2023

Could digital CFO tools be the way ahead for financial management in startups?

In a turbulent market, digital CFO tools could help startups attain sustainable growth

Aruni Sunil

5 min read

Sponsored by

Scaleup Finance

With a looming recession and signs of what could be the beginning of a global banking crisis, startups of all sizes need to stay on top of their finances for fundraising — and for ensuring sustainable growth. 

But in a turbulent and rapidly changing market, is going digital the best way for startups to take control of their finances? We find out from the experts. 

The importance of financial management in startups 

Staying on top of their finances is hugely important for startups but often founders of early-stage startups have to take on financial responsibilities themselves. Alexander Wulff, cofounder of Scaleup Finance, a CFO-as-a-service platform, says that most founders don’t come from financial backgrounds which can make it challenging when they have to act as the de facto CFO — responsible for strategic finance tasks like reporting, forecasting and financial modelling.  


“For early-stage startups, it’s not just a matter of having capital to hire a finance team member. When you’re less than 60 employees, you typically don't have enough work or tasks in the finance area to justify hiring a full-time employee,” he says.

“However, the finance function is strategically important for fundraising, which by nature constitutes the lifeblood of startups. Knowing your metrics and being able to clearly and convincingly communicate these to investors and board members is pivotal in that process.”

Joe Bond, a partner at VC firm PROfounders Capital, adds that it’s essential to start a fundraising process with clear reporting of financial metrics and “a bullet-proof budget that projects forward how you will spend the invested capital and how your business will grow”.

“This has always been something that VCs care about, but especially now that we are in an era of belt-tightening and capital efficiency. It is obvious when a founder has a strong grasp of the financial metrics which drive their business and when a founder does not,” he says.

Digital CFOs 

Wulff says that digital CFO tools help with this. “Many SaaS tools have emerged to help founders manage financial admin tasks like payroll or expense management,” he says. 

Tapping into a digital CFO solution allows startups to simplify — and professionalise

“But when it comes to strategic finance tasks like reporting, forecasting and financial modelling, founders have to compile data from all these systems and build up their own complex, error-prone spreadsheets. Tapping into a digital CFO solution allows startups to simplify — and professionalise these processes whilst getting strategic support from a fractional startup CFO.

For Kelly McCabe, cofounder of Perci Health, a startup offering personalised care for people living with and beyond cancer, digital CFO tools have helped massively with fundraising. 

“Even at seed stage, we found that investors wanted to see a high level of financial literacy, evidence that we had set budgets, were able to stick to them and had used our capital to date effectively,” she says.

“There was a strong focus on burn rate, 24-month milestones and financial KPIs — and particularly given our area of focus as a tech-enabled healthcare provider, where margins are typically low in the first couple of years, there was a strong interest in projections of our cost of care delivery and unit economics.” 

Keeping up with a changing landscape

Reports show that CFOs, and finance teams, are grappling with technologies like AI entering the market. Finance leaders are also reporting that there have been additions to the traditional finance duties — such as digitising business activities and managing cybersecurity. 

We’re viewing AI as an enabler to deliver a better product and become more efficient

Wulff says that while he doesn’t expect AI to change the CFO function drastically for the next few years, there’s no doubt it will have a huge impact on the finance function going forward. In the short term, he says the biggest potential lies in automating recurring financial admin tasks, thereby supporting CEOs, CFOs and other finance professionals in their roles. 

“We’re viewing AI as an enabler to deliver a better product and become more efficient, and as we have seen with many new technologies, it will enable finance professionals to focus more on strategic finance,” he says.

IBM research shows that nearly half of finance’s time is still spent on transactional activities, and fewer than 10% of activities are dedicated to analysis and in support of decision making. Freeing up the time to work on strategic challenges then becomes an issue, and this is especially true if companies don’t have the right tools and systems in place to automate traditional work such as making payments and closing the books.

“The benefit of using a digital CFO platform is that it is backed by a specialist team that is tracking changes in the market. They are implementing them to the best impact, so I don't need to worry about it,” says Paul Baranowski, founder of Climate Edge, a B2B SaaS startup that connects businesses with farmers.

“That way I don't need to sit and analyse a whole marketplace of tools myself, you just get an end result basically put in your hand which is just so much easier,” he adds.

McCabe agrees that using digital CFO tools can help founders focus on other more important aspects of their business. “Using digital tools to enhance the role of the CFO only works to create better interpersonal skills because the basics are taken care of and less time is needed to discuss minutiae,” she says. 

Digital tools that grow with your startup

Research from Carta shows that the number of startups having a finance team member increases from 5% to 18% as they reach a valuation of $25m-50m. Wulff says that as growing companies start building out their in-house finance team, digital CFO tools are designed to assist them on this journey. 

When startups  start building an internal finance team, it can be a challenge because the professional finance function consists of different roles

“When startups start building an internal finance team, it can be a challenge because the professional finance function consists of different roles, from bookkeepers and controllers to CFOs. Consequently, your first hire would have to take care of the entire vertical, and those people are hard to find,” says Wulff. 

Digital CFO tools solve this issue by adapting to the specific needs of startups as they grow.

“​​I can see us continuing to partner [with a digital CFO platform] even at later stages of our business, where we may bring in a commercial finance director, for example, who works hand-in-hand with our fractional CFO at Scaleup, benefits from using the digital platform and continues to use the bookkeeping, payroll and expenses support,” says McCabe.

Aruni Sunil

Aruni Sunil is a writer at Sifted. Follow her on Twitter and LinkedIn