Blog postCFO ServicesFP&A

What Kind of Finance Support Does Your Business Really Need?

Kelcee Blue | Director of Strategic Finance

Start-ups and small businesses are often limited by their ability to access the right talent. When it comes to finance, that talent can make all the difference.

Structuring the Finance Department: Who Does What

Every company has its own unique needs. Deciding when and how to bring additional talent onto the team is a decision that each organization must thoughtfully explore. Overcommitting to an executive hire before the organization can financially support the commitment might do more harm than good. 

However, putting off the same decision for too long can be downright detrimental to the future success of the company. How do you know when it’s the right time to add finance support? And even more importantly, how do you decide what type of financial support you really need?

Depending on the size and need(s) of your organization, your finance department can be very different. In some situations, all positions will be held by in-house employees. In others, the organization will utilize a combination of in-house, outsourced, and fractional services to meet all its needs.

The finance department, in its simplest form, begins with a bookkeeper who is responsible for documenting financial transactions. This position can typically manage tasks associated with accounts payable, accounts receivable, and payroll, but as the organization grows, the number of hands needed to manage the workload will grow as well. 

Growth also brings complexity. A bookkeeper might document transactions, while a controller might use the data provided by the bookkeeper to prepare financial reports and communicate financial standings with key stakeholders. Additional finance people might specialize in tax accounting, business development, and financial planning and analysis (FP&A). And, ultimately, the entire finance team will need an executive-level leader that can translate the data into strategy for the business leaders. 

A CFO isn’t a requirement for a bootstrapped startup. In fact, many small businesses don’t have a designated finance person at all. The CEO ends up wearing all the hats. So, what do you really need and when should you add key finance personnel to your team?

As a starting point, let’s talk about organizational needs in terms of size.

Finance Needs Based on Organizational Size

Companies need different financial support at different stages. In general, as a company grows in size and/or complexity, its financial resource needs will grow as well. Finance may need to expand in both quantity and capacity and add specific technical subject matter experts. 

Early-Stage Startups and Small Businesses

For organizations with less than $1 million in revenue, the focus is on establishing the business. At this point, financials are for compliance and providing a high-level view of profitability. As such, these organizations are generally able to manage well with a bookkeeper to document the financial information and a tax accountant to ensure tax burdens are met. These resources are often the most economical when outsourced.

Growing Companies

Organizations with annual revenue between $1 million and $10 million are typically considered growth-stage startups. Growth is always the goal but with growth comes added financial complexity.  

The focus shifts from establishing the business and its operations to scaling. To support this growth, financial expertise is brought in to implement processes and controls.

The organization should add/uplevel its Finance function by hiring a financial planning and analysis (FP&A) resource that supports budgeting, variance analysis, establishing KPIs, and more. This means that in addition to documenting transactions and preparing financial statements that give a view of historical facts, Finance will support strategic planning for the future. This can dramatically influence the ability of an organization to get to sustainable, profitable growth.

Strategic Players

As a business proves that it can sustain scaled growth, the organization transitions from a growing startup to a strategic player in the market. These businesses typically produce between $10 million and $50 million per year. 

At this stage, the finance team’s growth should include a Controller who is responsible for overseeing the bookkeeper or accountant. Some organizations may also expand their accounting and tax preparation teams, designate a finance professional to manage corporate development, and take on a Chief Financial Officer to serve as a director for the entire department.

Established Corporations

Surpassing $50 million in annual revenue threshold is a notable accomplishment. By this level, many organizations have committed to a full-time, in-house Chief Financial Officer and are building out dedicated in-house teams. But even the largest companies use advisors and consultants.

Even with a large finance team, established corporations may still have needs for outsourced finance support in FP&A or corporate development. It is good practice to have a relationship with a financial consulting firm that can plug in as needed to support temporary projects and staff augmentation for parental leave or other gaps in resourcing.

Developing a Finance Talent Strategy

Now that we have a rough idea of what the finance team might look like at different stages and sizes, let’s talk about when you might be the exception to the rule. 

Common factors that influence the finance team composition:

  • Industry and Business Model
  • Size of the Organization
  • Complexity and Scale
  • Reporting Requirements
  • Growth Goals
Industry and Business Model

Any industry that is directly tied to finance will inherently require a higher level of financial expertise. This includes banking and financial services, insurance, and real estate. Many of the professionals in these industries come from a finance background so having the right expertise on your team will always be important. 
Similarly, businesses tied to healthcare or technology also have more financial complexity. For these types of companies, even relatively small businesses and early-stage startups might engage FP&A or a CFO on a fractional basis.

Size of the Organization

needs. Generally speaking, the smaller the organization, the simpler the needs are. Many small businesses and early-stage startups with less than $1 million in annual revenue operate sufficiently with a bookkeeper and a tax professional. 

By the time that same organization reaches $2 million in annual revenue, they are outsourcing some or all of the bookkeeping and accounting functions, and may even be ready to add a fractional CFO.

Complexity and Scale

Complexity in organizational structure translates directly to complexity in financial management. For example, a business with a single location typically has a relatively simple financial structure compared to a global entity with dozens of different market presences in different countries or regions. 

When looking at two different organizations of the same size, the needs for financial expertise may be vastly different if the revenue comes from conducting business in different countries. One way to manage the financial needs of complex, global organizations is to strategically outsource finance functions to providers with specialized expertise in the different regions where the business operates.

Growth Goals

Another reason that a company may recruit specialized financial expertise through either outsourcing or in-house hires is to support an acquisition-led growth strategy. In order to plan, strategize, and execute successful growth using M&A, you need specialized expertise in mergers and acquisitions, corporate finance, accounting, FP&A, and negotiation.

It’s not likely that you’ll find all of these skills in a single hire. Instead, organizations of all sizes that are strategically pursuing M&A growth might either build an in-house team or partner with a third-party team to bring in a variety of relevant expertise.

Building a Finance Team to Meet Your Needs

The right mix of talent and expertise for your finance team depends on your needs. When you look at the size, structure, and requirements of your organization, you should begin to see that a one-size-fits-all approach to finance is rarely the right approach

At Embarc Advisors, we bring flexibility and impeccable expertise together so that you never have to take on more than you’re ready for. We’ve helped early-stage startups lay solid financial foundations. We’ve helped small business owners maximize the value of their businesses by optimizing for their exit. We’ve helped growth-stage companies accelerate sustainable growth. We’ve helped strategic players flawlessly execute M&A-driven growth strategies. And we’ve continued to support mega corporations through specialized FP&A or corporate development services. At Embarc, we specialize in meeting your finance support needs with a team approach.

Contact us and start the conversation that will shape your future.

See the Difference that Embarc Advisors Can Make for Your Business

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