How to Build a Finance Department for your Startup

An outline on how to best manage your finances and resource your team at each stage of growth.

Venture-backed companies — as well as those seeking VC funding in the near future — have a unique and challenging journey in understanding and managing their finances. Your specific challenges change constantly as the business progresses from the initial ideas stage to the first and second rounds of institutional financing.

To better understand how to resource for your finance team, it is worth first recognizing the core functions of any finance department.

  • Payroll: ensures employees and contractors are paid and HMRC payments are calculated correctly.
  • Cash management: oversees accounts payable and receivable and prepares monthly management accounts.
  • Credit control: makes sure that clients are paying their bills in a timely manner and that processes are in place to avoid bad debt, managing the situation if it does arise.
  • Financing: supports the Founder(s) through fundraising processes with angel and/or institutional investors to ensure the business is sufficiently capitalised.
  • Strategic planning: identifies and models the opportunities, risks, and costs associated with the business model and plan, clearly understanding the underlying unit economics and growth drivers.

Additional things to think about, depending on the nature of your business: Tax, Compliance, and Audit. We will cover these in a later post.

Day one: what you should and should not outsource

At the outset you can outsource Cash Management and Payroll to inexpensive accountancy firms without too much trouble. These may be based outside of the city centre, which is fine for your needs at this stage.

  • Payroll — Outsourced
  • Cash management — Outsourced
  • Credit control
  • Financing
  • Strategic planning

We recommend handling all other finance functions yourself as a founder/ co-founder — or at the very least keeping this in-house — as your company finds its feet.

Handling credit control yourself is important to understand the cash rhythm of your business. In our opinion, understanding the friction and pain points early is more strategically important than just getting cash in the bank. Strategic planning is also important to handle yourself to stress-test your assumptions.

Crucially, we recommend handling Financing yourself, as it’s going to be the only thing you never truly outsource, and it’s better to start practicing now!

Side note: it’s ok to ask for help.

It is a good idea to get external (unpaid) advice from a trusted contact with relevant experience too, especially at this early stage.

This person should be someone who is familiar with early-stage, high-risk, venture-backed businesses. Ideally they should be familiar with your business model too — it is terribly confusing to receive advice from credible folk who are well-meaning but don’t have transferable business knowledge.

Why unpaid? Because at this stage you should have enough well-wishers to sit down with you for a couple of coffees to discuss your strategy and get their advice on what to watch out for in terms of finances. The time to pay comes later on …

Committing to your first in-house finance hire

At some point you will reach a milestone and be ready for your first explicit finance hire. Every company will measure this differently, but let’s say for a B2B business, this is at approximately 7+ staff. You have £200–500K in Annual Recurring Revenue (ARR) and managing credit control is starting to feel difficult.

Now is the time to hire a part-time Finance Manager / Financial Controller for 3–6 days per month. This person will inherit the pain that you have felt doing this job and make improvements with systems and processes accordingly. They will be managing Accounts Payable (AP) and Accounts Receivable (AR) as well as overseeing the relationship with your external accountants, which by this stage may be becoming fraught! (Read our case study about how Rise Art overcame this pain point.)

Typical rates for a part-time Financial Controller are around £300–350 per day — any less and the person will require too much training and time (which you don’t have.) Any more is too much cash out of the business for what is really, an execution role.

  • Payroll — Outsourced
  • Cash management — Outsourced
  • Credit control — Hired
  • Financing
  • Strategic planning

Getting support for raising funds

You’ll now be planning for your first institutional round of over £1–1.5m. Unless you’re an ex-banker or accountant yourself, it’s advisable to get some help with financing and strategic planning to professionalise your model.

Here you are looking for specific expertise within your sector. You want someone who has had fundraising involvement to work with you for 5–10 days in total, spread across 1 month max.

The right candidates for this role will likely be career contractors or someone who has recently seen a company to exit and has a little time. This often comes under the title of Finance Director or CFO. Just ensure they have recent experience with and enjoy putting financial models together.

Rates can vary here around £500–600 per day. You can absolutely hire someone for less than that, but this is a high risk area to scrimp on. More importantly, do they get the nature of an early-stage startup?

Once the round is closed, you’ve ticked more off the list:

  • Payroll — Outsourced
  • Cash management — Outsourced
  • Credit control — Hired
  • Financing — Hired
  • Strategic planning

Expanding as you hit hockey-stick growth

Once expanding rapidly — across customers, staff, territories — it is time to seriously invest in your finance team. This should happen well ahead of your next institutional round, so that everyone is bedded in nicely when the time comes. In the meantime, they can add real strategic value in scaling challenges.

We recommend the following hires once you feel you have outgrown the capacity of the part-time professionals in your finance team:

  • Permanent FD (part-time or full-time) — £80–120K + share options
  • Permanent FC (part-time or full-time) — £40–60K + share options
  • Accounts Assistant / Bookkeeper (contract or permanent / part-time or full-time) — £180–250p/d / £28–35K + share options

At this point the right finance team can help with more than numbers. They can analyse and report for the business, increasing the reliance on data which improves decision making.

Adherence to process and use of systems is essential if they are to fulfil their roles, so they become natural guardians of (sensible) processes and system collaboration — both essential for scaling your business.

Hire slow for finance and hire well

We often see companies investing in senior, permanent members of staff for their finance department before they hit their growth stride, and it rarely turns out well.

Why does this person end up being a mis-hire? Firstly they are expensive, for a company that is (rightly) capital constrained. As a result, the Founder will place unarticulated expectations upon that individual and — whether they realise it or not — they’re setting them up to fail.

During the very early stages, an FD will spend much of their time completing mundane tasks, whilst also working through the challenges of the business model and the ups and downs of financing. The work is uninteresting, but the emotional burden is high, which is why this tends to be a mis-hire.

Delay these senior hires until later stages and by the time you reach growth stage you, the Founder, will deeply understand the cash rhythm of your business.

Passing this intimate knowledge on to an expert will only optimise your growth, and having a team to professionalise your finance department will feel like a breath of fresh air. In turn, they will see how much impact they are having, which is just the positive reinforcement one needs when joining a new company.

Can we help you scale your finance team?

If any of this strikes a chord, take advantage of a no-obligation chat with us about your current finance function and how to hire to meet your needs. At the very least, we’ll lend a supportive ear! Email us for an introductory chat at hello@juggle.jobs.