Lesson #353: Staffing Your Finance Department as You Scale

I was recently introduced to Tim DeBone a finance and accounting expert with The Bagchi Group, a business consultancy group in Morrisville, NC.  He had some interesting suggestions about how best to staff your finance and accounting function within your company, and how that changes over time as the the company scales.  He was kind enough to assist me in writing this how-to lesson and sharing it with our Red Rocket Blog readers. 

Introduction

As tech companies grow and evolve, the company's finance/accounting requirements and challenges change along with the skills needed to successfully complete them.  Because of that, your first finance hire may not always have the right skillset for when the company is 10 times the size, as an example. And, you may need to augment that team with fractional strategic level help.  To address the variability in the work and the time required to complete, many high-growth companies use outsourced bookkeepers and fractional CFOs during their early years, until they can better afford full-time talent of their own.  In this article we discuss the appropriate resources a CEO can engage to ensure the finance suite is properly managed, along each stage of the company's growth, and whether that talent should be outsourced or internally staffed.

Role Descriptions

Before we dig in, here is a brief description of the roles discussed in this article below, so you can better understand what we are going to be talking about here:

• CFO – Senior Finance Person with normally 15+ years of finance/accounting experience
• Can come from a finance background with roles that are analysis heavy
• Their accounting background is normally deep in their industry of focus, but weaker outside that industry
• Can also come from an accounting background with roles that were focused on preparing financial statements
• Their analysis background is not as strong, but they may have taken roles in the past to improve this skillset
• Bookkeeper – transactionally focused employee that runs payroll, collects invoices, and pays bills
• Does not require any formal finance or tax background
• Accountant – a certified professional with an educational background in accounting, able to perform all the duties of the bookkeeper
• The accountant is senior to the bookkeeper with a better understanding of GAAP principles and why accounting entries need to happen
• Will partner with CPA firm on financial reviews and audits

• CPA Firm – Outside accounting experts that partner with businesses on tax issues and review of financial statements, including financial audits, if needed.
• They can also help identify small business and R&D tax credits to reduce tax liabilities

At Formation (Pre Revenue)

At the start, the CEO can manage the core finance functions. Software systems are now sophisticated enough that non-finance professionals can manage early-stage payroll, collections, and payments. Depending on the growth path or complexity of the business model, the CEO may want to engage a fractional CFO to help create the forecast and cash planning. But until the company has significant revenue or outside investors, the CEO can complete most activities. We would recommend that the company engage an outside accounting firm at formation to help with annual tax preparation. Even without the need for a financial review or audit, this resource prepares annual tax filings and significantly reduces tax risk for the company. 

Pre-Seed Stage (Generating Some Minimal Revenue) 

Once the company has revenue and non-founder employees, they should engage an outsourced bookkeeper to take over the back-end transactional work. This involves running payroll, collecting from customers, and paying vendors. While these are straightforward tasks, the CEO hesitates to outsource them and their time is better spent guiding development or aiding sales. At this stage, a fractional CFO can help on a project-to-project basis, but the company will not have enough work for the CFO to require a preset amount of help each week. The CFO can improve metric tracking, evaluate back-office processes to prepare for growth, and help prepare the business for a seed raise. The CFO helps the fundraise by preparing employee and customer documents for investor diligence, ensuring the management team understands their growth metrics and benchmarks, and creating forecasts showing how investor funds will grow the business.

Seed Stage ($250K-$1MM in Revenue)

After raising a seed round, the investors may strongly suggest that the company employ a fractional or full-time CFO to manage the finances and strategic planning. The CFO will introduce budget vs actual analysis, scenario planning, and project out the cap table. Dilution calculations become more complex as the company hires more employees and brings in outside resources, especially when those new funds are SAFEs or Convertible Notes. The company may also switch from cash accounting to accrual (or GAAP compliant) accounting at this stage. Accrual accounting may be outside the skillset of the original bookkeeper so upgrading that role to a part time accountant may be required. Depending on how fast the company scales, that part time accountant may become a full time hire before the Series A fundraise is completed. That accountant, along with the CFO, will partner with the CPA firm to prepare annual tax returns and any financial reviews or audits.

Series A Stage ($1MM-$5MM in Revenue)

Once the company has raised a Series A, the CFO will be spending 8-10 hours weekly on the business. In addition to the previous work around strategic planning, the CFO will be building and training the back-office team, introducing additional risk mitigation processes, partnering with the CEO on tracking company performance, and partnering with the CPA firm on tax issues. The company will be growing quickly with increasing complexity across all back-office functions, referred to as General and Administrative (G&A) on most financial statements. The CFO will be managing and training the HR, Recruiting, Finance, Accounting, and Facility planning teams to enable the company to support the company’s growth. At this stage, a full-time junior level hire is required, either heavier on accounting or finance depending on the business model and the CFO’s background. With the expansion of the employee base and revenue base from additional growth, the CFO will need to identify and mitigate potential risks before they happen. Those risks can involve employees, security, legal, tax, or financial issues. Key Performance Indicators (KPIs) become essential as current investors, and future investors, will need to understand how the company performs versus targets and industry benchmarks. The CFO should also be measuring forward-looking metrics to anticipate whether the plan is succeeding or failing compared to pre-set plans and budgets which have been prepared by the CFO. 

Late Series A or Series B Stage ($5MM-$10MM in Revenue)

If a company continues to grow and hit their metrics after the Series A fundraise, the workload will require a full-time CFO to join the team. The amount of effort required to help the next fundraise process, run the G&A team, and support the CEO will be too much for a fractional resource. Hiring this role before starting the Series B fundraising process allows time for the new CFO to learn the business and can assist with the fund raise. The fractional CFO should have the processes in place to enable a smooth transition, along with highlighting which areas need improvement to scale the business. Two full-time finance/accounting employees should be able to manage the business at the Series B start, but the company may want to expand the HR/Recruiting function at this time to include a full-time employee. 

Hopefully, you now have a better understanding of how best to staff your finance and accounting needs as your business scales.  Thanks again, Tim DeBone, for your help with this post.  If any of you need additional help around your finance team strategies, Tim is happy to help you answer any of your questions.  Feel free to reach out to Tim at (704) 907-5866 or tim@bagchigroup.com.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Calculating Addressable Market Size vs. Industry Size

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to calculating your total addressable market size, as opposed to your total industry size.  As you will learn, your total addressable market size, which investors care most about, is a lot smaller than the industry overall.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in sizing your market.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #352: Treat Your Team Members as People, Not as Employees

I have recently written about topics like  how to manage a virtual team, considering an unlimited vacation day policy and swapping “I” for “We” in all corporate communications.  Do you notice a consistent theme here?  These are all policies that are very “employee friendly”—let your staff work from home, give them unlimited vacation days and let them all know how important they are as a member of the team.  Why is this so important?  Because recruiting and retaining employees are harder than ever, and the more things you can do to nurture long term loyalty to your business, the better your business will thrive and your employees will prosper.  At the core of this message is learning to treat your staff as the “people” they are, and not the “employees” you may perceive them to be.   What is the difference?  Allow me to explain.

What is an Employee?

The Merriam-Webster dictionary would say an employee is “one employed by another usually for wages or salary and in a position below the executive level”.  To me, the key words being “employed” and “below”.  This feels like an employee works FOR the company, as one its “cogs in the wheel”, and not working WITH the company on more of an even footing with their work colleagues.  Especially, when this definition starts to speak to layers of management, with employees working “below” higher layers of management.  From the vantage point of an employee, that doesn’t sound very enticing?

What is a Person?

On the other hand, that same Merriam-Webster dictionary would say a person is “the personality of a human being”.  To me the key words being “personality” and “human”.  This suggests that all people are different, with different personalities, interests and personal drivers that make them tick.  What works for one, does not necessarily work for another.  So, the more you can cater to an individual’s “personal” needs, the better they will respond and the longer they will want to stay with your team.

What is Managing Employees?

Most all of us have been managed as employees at one point or another in our careers.  Employees have very specific job descriptions, they are required to work rigid hours (most likely from a centralized office location) and report into a “boss” (who most likely feels more empowered and higher level).  Everyone is treated exactly the same, with very little flexibility in what is allowed “on the job”.    This is entirely “top down” in its design, with policies getting set by the top management.

How is Developing People Different?

On the flipside, developing people is more “bottoms up” in its design.  The people can more freely set the policies of the company that they feel will best meet their personal needs.  And, notice I used the word “develop” here and not the word “manage”.  I am trying to emphasize that this is a two-way street where both parties need to be happy with the outcome.  This could include letting your team members decide which days a week they work, for which hours each day, from whichever location they want and for however many vacation days they want (as long as their performance is good), with a culture where their ideas will be heard and potentially acted upon.  Why?  Because people have different needs, and the best companies will help them solve those needs and learn how to lean into those personal drivers as individual motivators.  Which in turn, helps instill long term loyalty, especially when they can see their own ideas becoming acted upon.

Get Rid of the Word “Employee” in Your Business

As long as we are talking about words and definitions, we might as well throw out the idea of deleting the word “employee” from our company’s internal vocabulary.  I much prefer the words “team member” or “associate”, as it speaks more to the theme we are trying to pound home in this article. It puts everyone on a more “even footing” and lets people know they are all beating to the same drum in an environment where everyone has each other’s backs.  So get rid of any words in your company that could be interpreted as having hierarchies or rigidity.  Maybe get rid of words like “boss” and “manager”, while you are at it, opting for terms like “mentor” instead.  Of course, there will be clear reporting lines, but that doesn’t mean they are not equal “people”, with unique needs and ideas of their own who should be equally respected and nurtured.

The Expected Outcome

If you implement this correctly, your team will love your business and would never want to leave.  Why would they—you have solved all their needs.  Which means if you have very little staff turnover, you aren’t wasting a lot of time with repetitive recruiting needs.  And, better yet, you are building long term institutional knowledge from team members who have truly “mastered their craft” over the years, helping to propel your business to new heights and reaching its fullest potential.  And, your team will appreciate everything you have done for them, to help them better meet their “non-work” needs at home, and incorporate some of their good ideas into the company’s plans (which makes them feel valued and respected).  Pretty much a win-win for all involved.

Closing Thoughts

Hopefully, you now have a better appreciation for what makes “people” tick.  And, that most people never want to be treated as an “employee”.  The more you can customize the team member’s experience with your company, the better it will be for all involved.  You will have happy team members singing your company’s praises, and you will be thrilled with the improvement in your company’s culture, productivity and profits in the process.  

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Don't Let Short-Term Thinking Hurt Long-Term Results

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to not let short-term thinking hurt your long-term results.  As you will learn, it is very easy to let your short-term cash needs "rule the day", but at the peril of maximizing your future growth efforts.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in knowing when to cut corners, and when not.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] How to Discover and Understand Your Competitors

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to best research your competitors and apply those learnings to your strategic plan.  As you will learn, it is vital to your success that you have a firm grip on what you are up against.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in "blocking and tackling" up against your competitors.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Treat Your Team Members as People, Not as Employees

I frequently write about employee experience and recruiting topics like how to manage a virtual team, the possible benefits of an unlimited vacation day policy and swapping "I" for "we" in corporate communications. After a look at these posts, you might notice a consistent theme: all are employee-friendly policies intended to let staff members cultivate their own identities on the job. Why is this important? Because recruiting and retaining staff is harder than ever, and the more things you do to nurture long-term loyalty, the more your company will thrive and your employees prosper. At the core of this message is learning to treat staff as the people they are, not simply employees.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.