Our Partners and I regularly get questions from Founders like, “When should we think about hiring our first in-house finance person?” Like all resourcing questions that Founders face in engineering, sales and support, there is no easy, “right” answer. At True, we are big fans of hiring talent at all levels when it’s really needed, and finance is often one of the places where a little later might be okay—however, the penalties of being “too late” can be high.
Here are ten signs a company is likely ready to bring on finance help, whether permanent, full-time or temporary:
- Board slides are done on a weekend and take the Founder more than two hours.
If getting ready for a board meeting is requiring a lot of original, creative, time-consuming slide-ware from the Founder, that’s not a good sign. Most boards are anxious to ensure that the materials they are receiving are necessary, essential to running the company, and do not take the Founder away from other important tasks.
- Cash and operating forecasts for the month, the quarter or the year are off by more than 10%…or they don’t exist at all.
We actually see that financings, both equity and debt, are sometimes delayed or derailed because of poor quality or incomplete forecasts. Knowing regularly where cash, cash burn, headcount and revenues are is key to demonstrating quality execution.
- The Founder spends more than 5-10 hours a month on finance-related issues.
In the beginning, our best Founders have a complete handle on where cash is, what makes up the burn, what levers to pull, etc.–this is important and expected. As the business grows, this task will of course consume more time. Once this “finance” effort by the Founder becomes a distraction from the focus on product, strategy, hiring, customers, etc., it’s time to bring on some more support, just as they would in other parts of the company.
- Board meeting “airtime” on finance matters is more than 15-20 minutes.
The best boards I have been invited to join want to spend most of the time on strategy, product roadmap, customer pipeline, vision for the future, etc. If you find the board meeting getting bogged down in finance details, it may be an indicator that the materials going out in advance of the meeting are not adequate, or just take too long to prepare–another sign that maybe some finance “leverage” within the team would be helpful.
- Outside spend on finance support is greater than $5K a month, and the data is not always helpful.
Once your spend on temporary finance talent climbs up, you will likely benefit from having talent in-house, fully dedicated to the company. In addition, as you grow and performance metrics, strategy, and forecasts take on increased importance, you may find that the standardized reporting from some of the outside firms does not prove to be very helpful. Accounting data is important–key performance metrics are actually useful.
- The Board is surprised by the Founder’s “cash out” date.
One of the symptoms of a growing need for more finance focus is the “miss” of the date the company runs out of cash. Needless to say, surprising the board with an updated forecast that creates financing drama is not helpful.
- Gross margin is negative, or well below industry standards, and the Founder is either surprised or doesn’t know why.
The specifics around accounting for gross margins, categorizing operating expenses, etc. has more judgment than many of us fully appreciate and can be one of the early indicators that a little more financial help, with the proper industry background, would be useful.
- The Founder cannot articulate the two key financial levers that drive his/her business.
Our Founders almost always have a great grasp on what is key to the business growth, customer acquisition, survival, etc. They may not, however, think of that in terms of financial metrics that may be very useful, such as inventory turnover, churn, MRR, ARR, customer acquisition costs, target EBITDA, target operating income percentage, LTV of a customer, etc. A good finance person can help here.
- The Founder doesn’t know what COGS is.
What gets properly included in Cost of Goods Sold (COGS) is surprisingly more judgmental and industry-focused than some would expect. It is important to get this right early, and to ensure that the approach taken allows data to be comparable to industry leaders.
- The Founder perhaps can’t explain the difference between “data” and “knowledge ” that he or she is looking for.
Finance people are notoriously focused on getting accurate data recorded in the company records. As I have explained to teams I have built over the years, recording transactions and data accurately is the “price of admission” in finance and needs to be the initial focus. However, translating that accurate data into useful information, analytics, key performance indicators (KPI’s) and “knowledge” is the real job.
Good luck and happy hunting!
Look for future blog posts from me on:
– Who do I hire first–controller, VP Finance or CFO? Why?
– What is the difference between these three roles?
– What are the backgrounds of great candidates?
– How do I find candidates and get the best person hired?