Best practice for a startup’s finance team will look very different from company to company; a regulated fintech might need a Chief Finance Officer even at seed stage, while another company might be preparing for an IPO and only just hiring the first full-time finance role. So what are the crucial considerations for a growing company throughout its journey? Carly Minsky of Tech Nation, in partnership with Charlie Walker of scaleup search and recruitment firm Harmonic Finance, put the question to four experts who had led finance functions from seed through to post-IPO.

How to hire: what finance roles does the business need?

Setting up

For many pre-seed startups, appointing a full-time Chief Finance Officer (CFO) is likely to be ‘overkill’, says PrimaryBid’s co-founder and CFO Kieran D’Silva. At the beginning of a startup’s journey, payroll, expenses and benefits shouldn’t raise complex challenges or require a non-standard strategy, he explains. What’s more, the data and analysis needed for accounting and financial statements should also be fairly straightforward, given that the business is yet to acquire significant external investment or put a revenue-generating plan into action.

In practice, these finance functions can often be fulfilled using out-the-box accounting software, by outsourcing to a consultant or hiring a part-time position, or with a combination of these options.

“It’s easy for early-stage tech companies to reinvent the wheel when it comes to finance, forecasting and accounting systems,” says virtual CFO Rob Mackean, who provides services to tech startups, including Glasgow-based pharmaceutical data tech company Talking Medicines. Using a virtual CFO to get started, even if it’s just one-time jobs or standalone projects – like applying for the Enterprise Investment Scheme (EIS) and setting up employee share option schemes – allows a bootstrapped business to lay the right foundations for bespoke and strategic decision-making without hiring an expensive full time senior finance role until the business can justify it, he explains.

“There’s a lack of education around the CFO role, the title and responsibilities across different organisation sizes,” says Abid Ismail, CFO at property management software company Plentific and formerly co-founder and CFO at Eve Sleep which held an IPO in 2017 with a £140m valuation. “I see job ads seeking CFOs which will be ‘the companies first finance hire’ – this is a misnomer as your first finance hire in most cases should not be a CFO, unless the budget and remit is to build a finance team from day one.

“This is why finance hires into startups can take such a long time or result in the wrong candidate – most founding teams are not intimately familiar with what a finance team does so they bundle every task they have seen in a finance job spec into the CFO spec – asking for ‘a strategic leader, who will take full ownership of all the bookkeeping, VAT and tax compliance, legal, as well as a business partner to the CEO to support fundraising, building KPIs and investor management!’ – that’s not a CFO hire, that’s an entire finance function!”

Most founding teams are not intimately familiar with what a finance team does so they bundle every task they have seen in a finance job spec into the CFO spec.

Abid Ismail, CFO of Plentific

Instead, for Abid, the key question to ask is ‘what problem am I hoping to solve today by hiring a finance role?’, rather than ‘when should I hire an in-house CFO?’. If the urgent need is for reliable bookkeeping, compliance and reporting, a financial controller or head of finance role is appropriate, he says, but if the business needs a more analytical and business partnering then a financial planning & analysis hire may be more appropriate. Once the today needs are met you can start thinking about a CFO hire to evolve the support the finance function provides to the business.

At PrimaryBid, where Kieran wears both the CFO and a co-founder hat, holding off on making any finance hires while the business was bootstrapping gave them more freedom and strategic insight to build the most appropriate team when the time was right.

“It was a hard decision not to hire a big finance team at the beginning, when revenue wasn’t certain,” he says. “It did put more strain on the limited resources internally. But it also gave us more optionality.”

Initially, Kieran used an outsourced provider for bookkeeping and spent significant time himself working on product development and commercialisation, but has shifted towards working as the CFO after a few funding rounds with revenue picking up and the company becoming authorised under the UK’s Financial Conduct Authority regulator. In the last year the company has grown from around 15 employees to more than 100, and has hired a financial controller with plans to expand the finance team further.

But hiring strategy and decisions about the makeup of the finance team are regularly evolving, he says, not just at key growth moments like funding rounds. It takes both foresight and conviction to start the ball rolling ahead of obvious milestones, so that there is enough lead time to hire the right people or invest in the right tools.

Anthony Rose, CEO at SeedLegals, a legals and financials platform for scaleups, says that for him, the most unexpected demand on the finance function at a very early-stage was the need to deliver financial data to the marketing team to enable finance-based decisions, for example on paid advertising budgets.

“Everyone expects that you have to do monthly payroll and you have to do annual returns, so you plan accordingly,” he says. “But you suddenly realise you need a lot of data about your customer acquisition costs and consumer purchase histories. Either you’ll be flying blind or you need to have processes and people in place to get you the data you need to make wise marketing decisions.”

Growing the business

“Until series B, I don’t think you need a CFO,” says Kieran. So what changes as the business enters crucial growth stages?

Fundraising itself introduces a new class of responsibilities into the finance function, from more complex accounting to the obligation to reporting financials to investors on a regular basis.

Both Kieran and Anthony at SeedLegals agree that at this stage, the specific responsibilities of the CFO will depend on the background and experience of others in the founding team. For example, if a fintech founder has previously worked as an investment banker , the CFO might not be as actively involved in fundraising as in a company where they are the central point for all financial data, analysis and accounting.

Securing funding can also mark a transition from bootstrapping to spending much more cash on technology and R&D. Suddenly, the potential to recover around 30% of R&D expenditure through the government’s tax relief scheme is more relevant and more urgent, Anthony says. The process can take months, he adds, and is not always straightforward. But since the reimbursement is often crucial to bridge the gap between funding rounds, it’s sensible to ensure that this specific accounting insight is covered within the finance team or outsourcing arrangements.

Anthony also highlights that preparing quarterly updates for the board ‘should be expected’ as part of post-funding CFO or FD responsibilities, but often comes as a surprise. Many VCs on scaleup boards are ‘quite prescriptive’ and expect a ‘deep dive’ into certain metrics, he says. SeedLegals uses its own product – a platform to automate legal and financial processes for startups – to ensure that relevant financial information is always accessible and ready to present to the board, rather than repeating the process manually each quarter.

Regardless of the specific tools or platforms used to do this, Abid agrees that quarterly reporting and other repeated tasks which need financial data should be ‘non-events’, in that they don’t require dedicated resource each time but instead tap into the finance team’s ongoing processes where automation needs to play an increasingly big role. At this point, the finance team is moving from being ‘functional’ – i.e. performing essential bookkeeping, budgeting, forecasting and reporting – to being ‘analytical’, says Abid. He believes that this responsibility is better fulfilled by a small, senior team – a CFO, for example, alongside another one or two self-sufficient team members – than by a number of junior finance assistants without senior leadership.

“When you are thinking about a big fundraise or a liquidity event like an IPO, seniority in the finance team is really important,” he says. “This is when the head of the finance team should be less directional and more supportive in their leadership; you have to empower others .”

Pre- and post-IPO

Preparing for an IPO or similar event is often a turning point for the finance team, says Abid. “It’s like suddenly having to fast forward three years into an organisation,” he says. “It propels you to think that you’re no longer a startup going from funding to funding, you’re suddenly a ‘proper’ company. And you need to have a proper company setup.”

Even before an IPO, preparing a ‘proper company setup’ can be a unique challenge for the CFO, who has often been brought in as the first in the role, he explains. The goal, Abid says, is to evolve the finance function to be truly ‘data-led’, using financial insights, modelling and forecasting as an enabler for company success.

He says: “Suddenly the [finance] role changes from being a function that is there to manage compliance and viewed by the business as the sceptical team that says ‘no’, to being seen as the objective function which isn’t biased towards any particular marketing campaign or product launch and therefore a critical decision support function. They’ll ask ‘what do the numbers say and what’s a reasonable trend to extrapolate from the numbers?’ and then give a data-led view.”

But to get to that point often requires an overhaul of original processes and systems within the finance function which weren’t set up for ongoing data insights or the formal reporting and presentations the company will have to do after an IPO.

“Often the foundations aren’t strong when the first CFO is brought in,” Abid adds. “Either you have to knock down the foundations to rebuild it, or if they have been set up correctly you’ll need to navigate how you can build on top of them incrementally whilst getting buy in from the rest of the business.

“Initially it can feel like the organisation is going backwards as the business response to the CFO establishing a more robust baseline can often be met with ‘we have a financial model already that just needs tweaking’ or ‘we know our KPIs so are set on this from’ or ‘we don’t need a process around that as its well managed already’.

“This is where the CFO needs to have the strength of character to challenge the areas they believe are not robust enough as the business will see the value in the months to come. The CFO will quickly become accountable for these areas and so it is advisable to shape them in a way that you are comfortable standing behind them.”

At Eve Sleep, Abid’s post-IPO responsibilities included filing financial statements to the City, and giving live filmed presentations to an audience of analysts. Compared to standalone quarterly board updates, the public nature of the role required more emphasis on communication and ‘building the story up’ on an ongoing basis. “The pressure on the information you give to stakeholders changes,” says Abid. “The share price can move even as you are presenting or answering analyst questions so you have to be really sure of every calculation and the implication of everything you say.”

In practice, the company needed more rigorous processes in place to interrogate the data and craft what Abid calls ‘messaging’ – that is effectively conveying the business progress and opportunity through your numbers and KPIs. He invested in FP&A analytics and automation to generate ongoing data-led narratives which were not only accessible to the finance team but also visible across the rest of the business. This was used to inform key parts of the stakeholder management from the Chairman’s statement through to investor relations communication.

“The market is the invisible stakeholder after an IPO,” he says. “Managing sentiment and how effectively you convey performance is crucial in helping to manage this stakeholder”

Optimising operations: what tools and technology are worth it?

When it comes to investing in technology and tools, Kieran again emphasises the risk of ‘overkill’ in the beginning and, just like for hiring decisions, advises early-stage companies not to rush into expensive commitments, instead taking advantage of more flexibility when the time is right and budget allows for strategic choices.

“Accounting systems are expensive,” he says “especially when you are not making revenue.” The trick is to pre-empt the moment when such systems would really add value, plan for it in advance, and make sure hiring plans and technology plans are compatible.

“Scaling up can happen overnight,” he says. “The benefit of making technology decisions in advance is that it can influence your hiring plans. You don’t want to hire as many junior accountants if you are going to automate them out of a job in six months.”

The benefit of making technology decisions in advance is that it can influence your hiring plans. You don’t want to hire as many junior accountants if you are going to automate them out of a job in six months.

Kieran D’Silva, CFO and co-founder at PrimaryBid

PrimaryBid invested in NetSuite software, which Kieran explains allows for scalable infrastructure. At early stages and growth stages, he finds that smart and automated forecasting and visualisation tools aren’t appropriate, since which charts and insights are relevant fluctuates too often as the Board and senior management explore different opportunities and scenarios. But Primary Bid is now planning to use more data visualisation tools, and Kieran notes that he sees some series A startups building data teams before finance teams.

Good technology platforms – particularly where finance and HR overlap – is crucial as the company grows and recruits employees who expect more seamless processes for invoicing, expenses, payroll, holiday entitlement and share scheme enrolment.

At SeedLegals, the added benefit to automating such processes on their own technology platform is that it frees up manual resource for tasks which are either repetitive or fairly standard across different companies. Anthony explains that the company doesn’t want to differentiate itself on administrative tasks like setting up an Enterprise Management Incentive (EMI) share schemes or calculating annual leave.

“Ideally, 100% of your efforts should be on building a product that people want,” he says. “Your goal is to ruthlessly reduce the effort you have to spend on anything that is not uniquely core to your product or winning over customers.”

What tools do they use?

• Business intelligence: Power-BI

• Invoicing: Approvalmax

• Financial reporting: Fathom

• Data visualisation: Looker

• Cloud business software: NetSuite

• Expenses: Concur

• Annual leave: Timetastic

Adding value: what does best-in-class finance look like?

Your goal is to ruthlessly reduce the effort you have to spend on anything that is not uniquely core to your product or winning over customers.

Anthony Rose, CEO at SeedLegals

Like Anthony, Abid also believes technology tools are crucial to allow finance teams to prioritise value-adding work. The best decision he has made, he says, is to embrace technology tools – from data visualisation tools like Power-BI or Looker to reporting & consolidation tools like Fathom. There is still a big opportunity for further automation in even the most well established finance teams whether that’s through applying machine learning on the data which the team now has access to or breaking out of Excel and Google Sheets into a more collaborative platform for financial forecasting – we are still at the early stages of the evolution of the finance team.

“I strongly believe the primary purpose of the finance team is to be a decision-support function,” he says. “This realisation is now happening at pace within all finance functions through a combination of data access, automation but most importantly the elevation of the role of the finance function.”

Across all the contributors to this article, there were common points of advice to achieving this:

• Keep your options open: don’t dismiss options like outsourcing or bringing in a consultant. Not every role needs to be in-house to be committed to your company’s journey

• Identify the business problem before you decide a solution: don’t over-commit to hiring lots of roles or spending huge amounts on tools because you believe it’s what growing businesses should do

• Set up the right foundations: ongoing, scalable processes – like accessible financial information across the company – will reduce the need for repeated tasks, ‘clean-ups’ or mad scrambles to keep pace with the company as it scales