Building finance teams
The lifecycle of bean counters
Before we jump in, some exciting news on my end - your boy just became a CFO. I’ll be joining a Series B tech startup to help them scale to the next level.
This is not a victory lap; it’s actually the point of no return where the real work kicks off.
I wanted to share the news and take a sec to thank all +5,000 of you for continuing to trust me with your Yahoos and Hotmails.
In all seriousness, writing Mostly metrics is a blast, and a big reason why I was able to land this gig. You are a part of my story. Thanks for your continued support.
So with that, let’s talk about building finance teams, something that just became a lot more relevant to me.
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Contrary to popular belief, most venture based companies don’t have a formal finance function until they reach Series B scale. Generally speaking, that’s in the ballpark of $5M to $10M in annual revenue and approaching 100 employees. It’s very normal to outsource basic accounting functions up until this point.
I’ve noticed that many of our readers live in the neighborhood of this intersection.
While some are FP&A analysts at Fortune 500 companies (sup, Mike) or publicly traded pharma giants (sup, Matt), we also have readers who are high functioning, and distracted, startup leaders, running around with their hair on fire, trying to pick up a few metrics on a bathroom break (sup, Marc).
Today we’ll look at how the Finance function matures over the course of a company’s life cycle. I’ve bucketed it into three broad stages - Startup, Growth, and Maturity.
Disclaimer: Views and opinions are my own. Not financial advice.
Timeframe: Pre Seed, Seed, Series A, Series B
Company Size: <$10M in revenue and <75 employees
Finance Team Size: The outsourced equivalent of 1.5 to 2 full time employees (A fractional CFO and the efforts of a book keeper and an analyst)
Key Hires: 3rd Party Accounting, 3rd Party Payroll Providers
Payroll: Ensure employees and contractors are paid correctly and on time. Comply with any state and federal tax withholdings. You can do this through a payroll provider.
Cash Management: Accounts Payable (A/P), Accounts Receivable (A/R) and monthly bank recs. This will include credit control, which is managing outstanding amounts owed from customers and avoiding bad debt. Cash flow is THE critical measure for any startup and any mistakes here can be disastrous. Establishing a cash rhythm is critical early on.
General Ledger Setup: Establish a book of record. Record all transactions in a small biz accounting system (e.g., Quickbooks, Xero).
Credit Cards & Bank Accounts: Checking, savings, credit cards
Cap Table Management: Figure out how you are giving out equity to employees, advisors, and investors (setup Carta or something similar)
Timeframe: Series B, Series C, Series D
Company Size: $10M to $75M in Revenue or ~75 to ~500 employees
Finance Team Size: Minimally 3, scaling to ~15 people
Priority Hires: CFO, Controller, FP&A Manager
Other Hires: Accounting Manager, FP&A Analyst, Payroll Specialist
Annual Operating & Hiring Plan: Design a monthly, quarterly, and annual plan including revenues, cost of goods sold, and OPEX. In tech, +70% of OPEX will be from the hiring plan. Budget for how many people will be hired by function, geography, and staffing level.
Monthly Reporting: Report on variances at the department level (e.g., engineering) and at the expense category level (e.g., rent). Design multiple P&L views to deliver the best information for decision making.
Fundraising: Lead fundraising efforts to subsequent rounds, designing a target list of strategic investors who can grow as partners.
3 Year Operating & Hiring Plan: Necessary for fundraising and headcount planning
Compensation Planning: Design incentive structures for sales teams to hit goals and executives to push overall company success
Marketing Program Budget: Work with CMO to design a plan that links to required sales pipeline
Investor Relations: Pen quarterly updates for CEO to send to board and investors. Fill out quarterly data templates for investors
KPI Dashboards: Granular reporting on the key drivers for the organization and presented in a format easily digestible for quick decision making.
Travel Budget: Allocate for each department leader
Ad Hoc Business Cases: Design 1+1 = 3 plans for potential M&A and partnerships
Cap Table Management: Maintain employee equity pool through hiring and fundraising. Coordinate any ad hoc secondary transactions
Timeframe: Series D through Public Markets
Company Size: +$50M or +500 employees
Finance Team Size: +25 people
Priority Hires: Treasurer, VP of FP&A, VP of Tax, Chief Legal Officer (if legal sits under Finance)
Other Hires: VP of Investor Relations, Director of Procurement, Global Controller (to oversee regional controllers)
3 Year Operating & Hiring Plan: Design a three to five year long term forecast, complete with free cash flow projections and a target financial profile. Three statement modeling, on steroids.
Fundraising / Capital Strategy: Debt and equity allocation; IPO readiness (if applicable)
Centralized Services (Procurement, AR, AP, Payroll): Hire professionals to negotiate your multi year vendor contracts and get better rates. Bring together Payroll, A/R, and A/P to manage your cash conversion cycle.
5 Year Operating & Hiring Plan: Necessary for fundraising and headcount planning
Quarterly Beat & Raise Forecasts: Mature the reforecasting process. Hone in on top-line and bottom-line ranges each quarter to align with the latest business expectations and communicate to stakeholders.
Systems: Transition to an ERP (e.g., Netsuite)
Centralized vs Decentralized Partnering: Decide if you are embedding budgeting and operational partners throughout the organization
FX Hedging: Manage foreign currency risk
Legal Entity Setup: Strategize for long term international tax benefits
Smart Stuff I Read at 2AM
Building Finance Teams by Jim Morales
What I’ve Been Reading
I’m starting to get my feet wet with how the financial rails and payment gateways work. My “gateway” into the fintech space is Samir Rao, who writes Interspace. Samir was an early hire at Chime and now works Unit, where he leads finance teams optimizing how people and businesses pay each other.
Last week he taught me the difference between ACH, Wires, and Payment Networks. Each option comes with an associated speed and price. It kinda blew my mind.
Interspace is a newsletter for over-engineered perspectives on fintech, strategic finance and unit economics nerdery. You can subscribe to Interspace here.
Quote I’ve Been Pondering
“You can have any drink you like, as long as it’s Corona.”
-Vin Diesel as Dom Toretto in Fast and Furious I