5 ways to ramp-up your startup's finance function

Worried that the finance function of your startup could turn into a growth barrier?

In this blog, our Irina Kolesnikova, together with fellow finance professionals, explores how a skilled finance team can enable informed decision-making and sustainable growth in a startup.

Startup founders need to juggle many tasks including finding product-market fit, acquiring early adopters, designing a scalable business model, making more sales, developing the product, hiring, selling even more – the list goes on. One often hears that founders executing these tasks successfully typically have their numbers growing, and so on. It even seems to me that ‘these numbers’, whatever they may be for a given startup, are expected to be shown to any VC during any discussion about investments. Therefore, it is fair to say that numbers are important.

Despite the high importance of ‘the numbers’, I'm afraid that the appreciation towards the processes that happen between the sales and ‘the numbers’ growing is lower than it should. In discussions with finance professionals in startups and scaleups, I hear a few comments frequently. First, the finance team has very limited (or no) involvement in decision-making processes. Second, the finance team wishes that a development project would have been started years ago instead of just growing the finance team. Finally, financial projects are rarely a company priority in good times. The attention shifts to financials mostly when the company is facing challenges and is looking to optimize costs.

Typically, a company that is leaving behind its finance team in decision-making and neglecting the development of finance processes face several problems:

• A finance team (or person) grappling with increased manual work and limited opportunities for automation
• Lack of processes resulting in overlooking relevant laws in contracts and agreements, sometimes, even lack of written documents
• KPIs, such as ARR, are unreliable and not reconciled against actual customer agreements, orders, and bank statements
• Overall inability to explain the story behind the numbers, potentially resulting in a company valuation lower than initially anticipated, jeopardizing the whole funding round

If you are a founder, do not take this blog post as a judgment. We totally feel you. In the beginning of a startup, it's reasonable to navigate without a dedicated finance professional for a while, and use your resources for hiring tech and sales personnel. It may seem unreasonable to hire a full-time employee with a substantial paycheck solely for managing monthly reports. Even more, it may feel that a dedicated finance person could change the currently flexible and fast-moving startup into a corporate monolith with expensive and slow processes. It only seems to us that the function of finance is undervalued and misunderstood in high-growth companies. We believe that after the fast-moving and flexible startup grows, the finance function is in a hurry to change. Without change the finance function will turn into a growth obstacle instead of a sustainable growth enabler.

There are several ways to ensure that your finance team keeps the pace and does not turn into a growth barrier. Here are five that we devised together with several other finance experts working in high-growth companies:

1. Think about the timing – when to hire an in-house finance person

The timing is strictly linked with the current stage of your company. Typically, a natural moment for bringing in an in-house finance expert is aligned with securing Series A funding. When hiring an in-house finance person, resist the temptation to go for the lowest salary expectation and avoid hiring someone who requires extensive hand-holding, even if the budget is constrained. Remember, even if you engage an accounting firm, it's always crucial to understand and be able to tell the story behind the numbers. It doesn’t look convictive if you can’t describe why profit margins fluctuate on a monthly basis and why fixed costs aren't constant.

2. Identify the right profile of the person to be hired

If your startup is at a relatively early stage, look for a proactive problem solver—a hungry individual who can swiftly and efficiently get things done. They don't need to know everything about everything, but they need to have a ‘can-do’ mindset. A willingness to ask questions is crucial, they are there for building the whole finance function from scratch instead of ‘doing things as we have always done before’. As your firm grows towards a larger organization, consider hiring a candidate with the knowledge and capability to elevate your business in line with your strategic objectives such as, for instance, international expansion.

3. Evaluate the relationship between Finance and Operations

Especially at the very beginning of a startup, it's crucial to get operations up and running first. The role of finance becomes more emphasized at the Series A stage. However, it might be too late to introduce a finance person at that point. Therefore, instead of hiring a finance person as one of the first employees, consider introducing them through a broader operational and finance role, already from the start. In this way, having someone on the team who is familiar with finance-related workings from day one ensures that the link between operations and finance will be set up.

Furthermore, there might be a chance that this person in charge of ops and finance tasks will end up donning multiple hats including legal, tax, compliance, and even HR. Once the team grows, consider hiring full-time personnel to these roles, when the time is right.

4. Involve your CFO (once you have one) in the decision-making process

Actively engage your finance function in the strategic decisions instead of informing them retroactively. While finance executives should not wield excessive decision-making authority, their invaluable input will undoubtedly provide you with a vital perspective on strategic choices. Leveraging the CFO's financial acumen and strategic thinking can enhance the overall decision-making process, ensuring a well-rounded and informed approach to key strategic initiatives.

5. Streamline documentation and routines

Document operational processes to free up long-term capacity for development work, facilitate seamless onboarding, and stay abreast of ongoing developments. Getting administrative matters in order sooner rather than later is crucial. Ideally, processes should be set up considering five years ahead, not with a quick fix solution that serves just the current moment and ‘gets the job done’. Therefore, adopt an attitude that prioritizes thoroughness; you will thank yourself later for making this decision. By establishing efficient documentation (and archive) of processes and routines, you not only ease day-to-day operations but also set the stage for enhanced productivity, smoother onboarding experiences, and active engagement in ongoing development efforts.

When done right, a skilled finance professional not only ensures accurate figures but also provides valuable insights into the company, influencing your decision-making process and creating space for fruitful discussions. This approach also helps the sales team understand their limitations, reducing the likelihood of making overly flexible promises to potential customers. Above all, once your due diligence is underway, you can trust that ”the numbers” are rock-solid and bulletproof.

I’m always up for hearing your thoughts on building the finance function of high-growth companies. Or would you like to have more tips? You can reach me at irina@maki.vc