Entrepreneurs frequently find scaling their finance team one of the more difficult aspects of running their business. This may be because the requirements of the finance team are normally so different from the rest of the business and finance operations can have finely nuanced systems, procedures, cultures, and relationships that often benefit from subtle and marginal improvements so that finance can appear frustratingly resistant to change and growing with the business. The tensions can be quite acute in the creative sector where the founder will often have a creative rather than a business administration background.
It can therefore be helpful to consider five of the main finance models used by many scale ups as follows:
- Over-spec: This is where a senior and experienced finance leader is brought in to tackle the accumulated issues facing the finance function and is often favoured by private equity, with an eye on their own exit process. Clearly, the chemistry between the founder and the appointee is critical and when this is right the model can be highly successful. Our experience of working with these clients is that the CFO’s secret to success is often their willingness to engage and partner with advisers to support them with challenging aspects of the role, whether that be changing the finance system or improving operational matters falling under their remit, such as data protection, IPR and commercial risk or IT and development. This model has its risks where the finance lead is reluctant to be challenged and so can retain overly expensive, complex or slow financial arrangements.
- Grow and build; Here, the finance leader develops with the business where they do not have experience of running a finance team for the increased scale of the business. Often these finance leaders are highly trusted, have a detailed understanding of the business and even formed part of the founding team. Our experience is that these finance leaders can be reluctant to reach out for help although mentoring (to work on finance development, build a team and for personal development) and specific assistance on finance development initiatives can enable finance to grow with the business. Their lack of experience in some matters, such as audit, funding, investor relations or acquisitions can also be easily supported as discrete projects that help them learn and develop personally. The main risk with this model is that support if not found early enough so the finance lead finds themselves out of their depth.
- DIY; This is where the founder or another member of the founder team has taken on the running of finance themselves. This can work very well, especially with intuitive accounting software such as Xero and Hubdoc. Very often, clients seek help for system set up, occasional checks (eg VAT, payroll), year end tax and reporting as well as creating a straightforward forecasting tool. This model can work very well until the founder needs to devote more time to focus on growing the business and can afford additional help.
- Outsourcing: Many scale ups outsource their finance operations to an accountancy practice who support payroll, bookkeeping and general accounting as well as year end compliance. This can work well as long as the business’s requirements are straightforward. While this is not a service we provide, we often work with clients and accounting practices to provide ‘top up’ support that draws on our operational experiences or help clients move on from outsourcing, where clients need more developed finance partnering or systems.
- Virtual CFO; This model can be extremely popular as it provides a sounding board to the entrepreneur. In practice we find that clients need a more flexible level of support, so it may be that a financial controller, finance manager or head of finance is more frequently needed and most cost effective, with periodic updates or access to additional experience as needed. This more flexible variation also limits exposure to one individual’s skill set.
We find that the needs of a business are so variable that boiler-plate solutions are difficult. Our experience means we support venture stage scale ups, through to businesses preparing to be investor ready and FTSE listed businesses. Whether it be mentoring, systems changes, management information or NED support, our team can help find the most relevant solution for you. Do contact us for a free confidential consultation if you’re looking to develop your capabilities so that finance is a catalyst for entrepreneurialism and supports resilience, decision-making, accelerated growth and creative teams.