Systems, strategic thinking and a sounding board: Why you need a Finance lead

Building a strong leadership team is a crucial part of successfully scaling a business. As a Founder it’s vital to surround yourself with great people who are not only experts in their fields but also seek to challenge you. At the heart of this team is the Finance lead. This is usually a ‘CFO’ or ‘Finance Director,’ although these titles are purely semantics and success in this role focuses on a strategic mindset and the ability to drive the business forward with data driven insight.

Why do I need a Finance lead?

Perhaps most obviously, the ‘Finance lead’ is someone who can build the foundations of the finance function and provides sound financial management as the business scales — everything from budgeting to KPI’s, planning, reporting and compliance. These are usually time consuming tasks that a Founder has completed up until this point but unless they have a background in Finance, there’s no guarantee that they’re being done well. By bringing in a specialist it ensures that the business has a best in class finance function, whilst giving some valuable time back to the Founder.

Secondly, at the €1m+ revenue stage, the quantum of information coming into the business rapidly increases making it progressively more difficult to have visibility of everything. A strong Finance lead will understand how information flows throughout the business and create the right processes and a universal language so that everything can be analysed and evaluated from a single source of truth. This allows for high quality conversations and provides piece of mind to both the leadership team and board that the numbers are ‘accurate,’ allowing for informed decisions to be made.

Lastly and perhaps most importantly, once a business has the right structures and processes in place then it can focus on becoming data led. A great Finance lead will think more strategically at a company level (are we adequately capitalised? Should we be fundraising?) but also across functions, using insights to drive momentum on sales, improve ROI and build a centralised dashboard for key metrics.

What are the signs that the business needs a finance lead?

There are some common indicators that suggest it might be a good time to hire a Finance lead:

1. Founder time: if a significant amount of Founder time is spent on Finance / operational duties because no one else is doing it, then you need to hire someone that fully understands all aspects of finance as the business grows.

2. Data & Insights: if reporting and producing KPI’s is anything other than super smooth, quick and automated then you need a Finance lead. Or if you have the data, but you’re struggling to forecast or understand why performance is up / down and information is always a few months out of date, then that’s another good flag. Often you also see different departments creating their own data which doesn’t necessarily marry together, this signals a need for consistency in reporting across the business.

3. Fundraise: if you’re about to start a fundraising process, having a Finance lead can be extremely helpful, especially if they have experience of being involved in or even running processes. They can manage conversations with investors and prep material, allowing you to stay focused and engaged on the day-to-day running of the business.

4. Errors: this might sound obvious, but if things start to go wrong (e.g. you don’t have as much cash as you thought you did) then it’s a sign that you need someone senior who is fully Finance focused in the business.

5. When you need a business partner: this is particularly true for solo founders — at some point you need someone to share the mental burden with who is as invested in the company’s success as you.

‘When we raised our Series A we moved into a different phase as a company. Even as a Founder with a Finance background I was only able to do the bare minimum for Finance because of everything else I had to do — and what I was doing was at the cost of other value add things that you don’t always see when you’re in the thick of it. This was when I knew we needed to hire a Finance Lead.’ Christoph, CEO & Founder, Semble

When’s the right time to hire a finance lead?

There’s no concrete ‘right answer’ to this, it all depends on the type, need and complexity of the business, but if you ask Founders, most say they wish they had done it earlier. If the company is ‘simple’ in terms of number of geographies, customer volume and contract sizes, it’s possible to survive for longer without a Finance lead, as long as you have the right systems and processes in place and someone within Finance in the business, e.g. a Finance manager.

In terms of stage, post Series A is the most common time to make this hire, but sometimes it’s not until Series B. (After a fundraise is usually a good milestone as it’s often easier to hire once you’ve raised as it demonstrates momentum and attracts interest from good candidates.) In general, it is helpful for a startup to have a fractional finance lead early on, so that high quality foundations can be put in place and bad practices don’t slip in. Too often, the first 12 months after a full time Finance lead joins is spent replumbing what has been done before. In our experience founders are shocked just how many places a finance lead can support them, not regretful of the extra overhead.

‘I wish I had hired my finance leader sooner. As soon as they came on board it was clear how valuable they would be in improving our decision making. There was so much to be improved that I wasn’t aware of’ Neil, CEO & Founder, Lunio

What are the different Finance roles in an early stage business?

Outlined below are five types of finance role found in early stage businesses — the order of the list suggests how a business might think about a developing finance function as it scales:

1. Outsourced provider: does a specific role e.g. bookkeeper.

2. Financial Controller / Manager: duties include reporting and management accounts.

3. Fractional Lead: usually a part-time role when the business needs a senior Finance role but isn’t ready to hire a full-time CFO, can lay the foundations for a Finance function and team.

4. ‘Up and coming’ Lead: strong at OKR’s, KPI dashboards and owns the model, but hasn’t been a CFO before. A good option for a steady to high growth business who doesn’t have a large budget to spend.

5. Full time Lead: Strategically focused, has previously led fundraising, a challenger and copilot, manages capital allocation and a sounding board for the CEO. Adds material value to each individual function in the business through clear information flow and co-ordination.

Do I need a Finance Director or CFO and what’s the difference?

As a business scales from Series A to C, the Finance lead role moves from operational (monthly accounts, manage finance systems, reporting) to strategic. The journey from Finance Director to CFO often happens on that journey, albeit the names are somewhat arbitrary. As it develops into more of a strategic position, the (CFO) role can add additional value to the business by:

· Identifying ways to help the business perform better

· Supporting with pricing and contract negotiations

· Acting as a core part of the leadership team

· Adding a trusted voice around the board table

· Helping manage the fundraising process, board meetings and investors

· Acting as a ‘right hand’ person / sounding board for the Founder

In a nutshell, a great CFO is a facilitator of turning data into insight so that the business can be better. They are someone who is always thinking ahead and challenging the business at a functional, strategic and leadership level.

‘The Finance lead role is much broader than I initially expected. Not only does a great Finance lead implement processes, but they impact the company’s financial strategy and culture, particularly in terms of efficiency and cost control. A great Finance lead will give you significant amounts of leverage as Founder. They’re someone who has a company-wide impact, a sense of ownership and who genuinely cares about the business.’ Christoph, CEO & Founder, Semble