In this post, we would cover the importance of a finance team: the role your finance plays in strategy setting and implementation, and whether you should outsource the finance function or bring it in-house.
Finance Team & Contributions
Within a start-up, just as your sales, marketing, and product are important, Finance should certainly play an integral role in setting companies’ strategy and its implementation. Not just because of the operational and strategic financial aspects of the process, but the valuable inputs on unit economics. To deliver a strong revenue engine, a holistic approach is necessary. An approach where each department or area of the business from R&D, marketing, and sales are not treated as silos, but rather an inter-related part of one system, assuming your operating model is set up functionally. There are numerous other ways of organising (e.g. product or service or geographically divided organisation), and finance will play a role one way or the other. Whether outsourced or internally developed as a function within the business.
Outsource Finance
The decision on whether to in-house your finance function or keep it outsourced is very important. At the very early stage of growth, when the start-up is going through seed rounds or proof of concept (i.e pre-revenue), I always advise founders to outsource. It provides them peace of mind, knowing fully well the outsourcing partner would take care of the accounting and finance. They will cover all mandatory reporting, regulatory filing, cash flow forecasting, so the CEO/founder can focus on developing his or her team and growing the company.
Having worked in a tech start-up-focused accounting practice, I have first-hand experience working with some amazing start/scale-up companies. As a portfolio team (focused on managing several companies in different growth stages), there is a limit in terms of how much time you can dedicate to a company and the value you can add. Depending on the service package you have signed and the company’s growth stage, it is impossible to provide an equal level of services to all the companies in the portfolio. Even with a well-structured set-up, your company is one of many that needs the support functions, hence there is a limit on how much time you would be allocated to your outsourcing team.
The standard deliverables (but not limited to) at this stage are month-end (i.e closing your accounts monthly), VAT returns, corporation tax, year-end (closing accounts at the end of the financial year) accounts, R&D tax credits, cash flow forecasting and secretarial services. Any other projects outside your service level agreement (SLA) will attract extra charges. At the very early stage, outsourcing is worth it due to the expertise of your outsourcing partner and the value they can add. Also, they have the infrastructure and can adapt based on your needs.
In-house Finance
At the early start stage, some start-ups wait for 3 or 4 years into existence before creating a finance team in-house or at least, start the process. I would argue that once the proof of concept (POC) is completed, the market viable product (MVP) has been released, sales tractions are coming together nicely, start hiring in the finance team and operations. Or at least start the process of bringing your finance function in-house. As we have alluded to in the first post, time is not on your side. Hiring those experts is not enough, it is important to listen to their valuable inputs and allow them the space to do what they do best.
Depending on the business model, your first finance hire, Financial Controller or Financial Director (with the support of the outsourcing partner) can initiate the in-house process, covering all the basic finance team functions mentioned above. A few months into his or her tenure, month-end should be a lot quicker and more streamlined. The first hire should lead the in-house process, international expansion, tax strategy (if it is a group of companies), and operational finance before moving to more strategic inputs.
To summarise, whether you outsource or build your finance team in-house depends on the stage of the company’s journey. At the very early stage, outsource, while you focus on building the product(s). Once the product is more mature, the market is established, and you are generating cash, you can start the process of in-housing your finance function. Subsequently, build your team internally, the benefits certainly outweigh the costs.
Keep calm, the Finance team will handle it😊
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