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🧑‍🎹 The Art of Building a Finance Team

Remember, titles are misleading

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A word
Mercury

The art of simplifying your finances from day one

In a startup, being the first can be exhilarating. Being the first finance lead, however, can be daunting. Mercury explains how to simplify the complexities you’ll inherit and establish a strong finance function in the first few months.

Learn the five steps to simplifying your financial workflows and positioning yourself and the company to perform at the highest level.

Working

“Director”

Titles are misleading.

Early in my career, I had a role titled ‘Business Analyst.’

I’d been doing it for about 18 months and felt I was ready for something bigger. I started looking at external roles and was soon offered a role titled ‘Director of Finance’ in a different business.

I had a decision to make.

That evening, I drew out a pros and cons list.

On one side I had a role with a team of 2, looking after a budget of $30m.

On the other, I had a role with a team of 50, looking after a budget of over $1bn in a $100bn business. With full responsibility for accounting, reporting, budgeting, financial planning, analysis, and business partnering. Rich with exposure to some outstanding execs, all of whom I could learn from.

It was a no-brainer.

Here’s the catch.

The role with the team of 2 was the Director of Finance role. The current role I had was a better role and opportunity by an order of magnitude.

I had been blinded by the titles. The role I was in was an incredible opportunity for a 26-year-old finance pro. I realized it had everything I wanted. Why was I wasting my time looking elsewhere? That energy should have gone into crushing it as a ‘Business Analyst’.

The Director of Finance was perfectly respectable, but I currently sat on a treasure trove of learning and opportunity and hadn’t realized it. Purely because of the job title.

It was a valuable moment. It told me it's the work itself that matters, not the job title.

This insight stopped me from making what would have been a truly terrible career decision to secure some different words to use in my email footer.

But, more than that, it shaped how I built structures for my team. I realized titles can mean very different things in different places. And therefore don’t really mean anything at all.

When understanding a role, whether for myself or building within my team, I would focus deeply on the substance of the work itself. And how it interacted with the organization.

I read resumes differently. I read job adverts differently. It changed how I designed the teams I built.

It was a powerful reframing.

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Deep Dive

This is part 2 of a 3-part series on building a finance team.

The Art of Building a Finance Team

A common question I receive:

How should I structure my finance team? Should we do the budgeting in the controlling team or the FP&A team? Should cash forecasting sit in treasury or FP&A? Should business partners report to finance or their partner team?

My answer is always the same
 it depends on the work itself


  • How is the business structured?

  • What are the precise tasks?

  • Where do those tasks receive information from?

  • Where do they supply information?

  • How do they interact with the business and the systems?

I have never seen any two finance functions that are exactly the same.

So generalized finance organizational designs are useless.

But, there are some common principles that we can apply consistently.

Today, we will cover those principles.

We can break all finance activities into one of five buckets:

  1. Finance Operations

  2. Technical Specialists

  3. Financial Planning

  4. Business Partnering

  5. Finance Leadership

You need a bespoke operating model for each of the 5. In a small team, one person could perform several of these roles. In a large team, you’ll have several people doing each.

The key thing is that you align finance activities into one of these five buckets. And then apply a common principle to each activity under each bucket.

Then, when you bring the 5 buckets together, you have your finance operating model. Once you have this, designing your structure will become easier.

Let’s take each of the five buckets in turn and define them:

1) Finance Operations

Think of finance operations like the engine of the car. It drives everything in finance. If you only get one part right, make it finance operations.

They look after the key cycles:

  • Order to Cash

  • Procure to Pay

  • Inventory Management

  • Record to Report

  • Cash Management

Engine

These are the things you don’t notice if they are working well, but will ruin your life if they are not. Overdue debts. Angry suppliers. Balance sheet holes. Cash forecasting all over the place. No information to drive the business.

Finance operations are about control. You want this all centralized in one team working closely together under a controller or a Chief Accounting Officer. In a business unit with multiple business units, there is an argument for having finance operations in more than one place. But it really depends on the business and the systems/ERP complexity.

Finance operations is an area that is rapidly being automated and will soon be gutted by AI.

You need to build an accounting and reporting engine for the business. But one that is nimble enough to be finely tuned by new technology as you go.

2) Business Partnering

Your business partners are the wheels of the car. Where the rubber meets the road. Note the wheels will not move without the engine.

Wheels

Business partnering is an activity to support the business. It involves working alongside profit/cost-driving functions. They'll need to get their hands dirty to help the business make better decisions.

Note I say ‘activity’ rather than role. In smaller teams, these functions will be performed by the same people performing finance operations tasks. But it is a very different skill set. Ideally, you want dedicated business partners supporting each of the different units.

You want them working directly with their ‘partner function.’ But also with each other. Plus the wider accounting and finance team to help the business improve performance.

For example, an operations business partner would work directly alongside a VP of Operations. They'd help give finance a voice in operations decision-making. This might mean modeling the impact of a new shift pattern on labor cost per unit. Or creating waste reporting.

Partners could be supporting functions, like operations, sales, and procurement. Or it could be supporting full P&L business units.

For these roles, a decentralized structure is better. You want them to spend 90% of their time with the function they are partnering with.

The challenge for the CFO? To ensure the raison d'ĂȘtre of these guys is to drive the finance agenda in the part of the business they are supporting. These guys can easily forget who they work for and go native.

You need to get the balance just right. The questions you need to answer:

  • What parts of the business would benefit from business partnering?

  • Does it merit dedicated partnering resources (and can you afford it)? Or is it part of another role (in FP&A or controlling)?

  • Can the business partners comfortably demonstrate value at least 10x their salary?

  • How do your business partners interact with the rest of the finance team?

  • Solid line to finance and dotted line to partner function, or the other way round (this is about trust, culture, and organizational maturity)?

3) Technical Specialists

This includes:

  • Tax

  • Accounting technical

  • Treasury

  • Internal audit

  • Legal

  • Pensions

These are areas that require deep subject matter expertise. Think of technical specialists as the driver assistance in the car.

Assistance

They are like internal consultants. You don’t need to know what they know. They are the experts, not you. You just need to know they have your back and know enough to know how and when they can help you.

Many CFOs get their relationship with technical specialists wrong. They either:

  1. Spend too much time here, because it is comfortable (CPA CFOs take note)

  2. Ignore this work because it’s boring (MBA CFOs take note)

Pick the right people, and like a driver assist system, they’ll always have your back.

The decisions you need to make here:

  • Which specialisms do you need? This is about risk and risk appetite.

  • Do you outsource or insource?

  • If you insource how do you structure them to interface with the business?

You generally want them close to the finance operations teams. That is where 90% of their interactions will be. It’s common for internal audit and legal functions to report directly to the CFO. The independence of the accounting teams is important in the case of internal audit.

4) Financial Planning

So the car is moving, but where are we going? This is where financial planning kicks in. It’s your windshield. It is common for financial planning and business partnering to sit together in an FP&A team. This is fine, and often a great way to organize these activities.

But they are different activities and should be thought about as such. Business partnering is about executing and short-term decision-making inside guard rails. Financial planning is about longer time frames and setting those guardrails.

The work here mostly is forecasting and analysis. With an eye for making predictive assessments about the future. Measuring and forecasting leading indicators. Before they become lagging reporting issues. This is a highly analytical skill set and requires advanced modeling skills.

Access to accurate data is critical too.

These guys and girls will need to interact with all corners of the business. And will have a bias toward interacting at a senior/C-Suite level. As they are modeling, they will be using key assumptions and judgments. Often that will come from the very top of the business.

Generally, as businesses mature and grow you want more bias towards financial planning. But also, that’s useless if the business isn’t ready for it. So there will be a balance point for your business, which will change over time.

5) Finance Leadership

While your financial planning team will tell you where you are going, they won’t be able to change your course. You don’t control the car with a windshield.

The driver of your car is the finance leadership.

An effective finance leader needs to be able to coordinate and integrate the other 4 activity buckets. This could mean a single leader (CFO). Or in a large business it could be multiple roles: Group CFO, BU CFO, VPs of Finance, Controllers, etc. 

Finance leadership takes responsibility for the integrity of the car. And also the journey itself. The journey here is delivering value for the business in pursuit of its business plan.

Note that finance leadership is distinct from business partnering roles. In many corporates I see the two things confused. Roles in business units that are titled Head of Finance, VP, or even CFO. Sometimes these roles are not truly responsible for controlling the car, in practice.

These are important roles, that create enormous value. But glorified business partnering roles shouldn’t be confused with true finance leadership.

I have interviewed senior finance leaders, often with Business Unit CFO on their resume. And some great experience. But in reality, they wouldn’t last two minutes in a true finance leadership role.

Look at the work, not the title.

So how do we bring this all together to ensure that the car doesn’t end up in the shop, or worse, the scrapyard?

By now, you should have:

  1. A finance vision that aligns with the business strategy from last week

  2. Clearly defined some organizational design principles for each of your 5 finance activity buckets

Now you can start to work out, how, from CFO downwards, you need to build your structure. I normally start with finance operations - it is the engine after all. Then you can work out how you want to support the business.

The size of your finance team (and ultimately your budget) will determine the extent to which you can separate these into focused roles.

And in doing so, you will determine whether you need generalists vs specialists in those roles. Which will determine how you fill them.

Finally, if you are still with me, I’ve saved the most important point for last


You MUST design the structure for your finance team ‘blind’. i.e. you are not designing it around the people you have. You design it around the above principles and the structure you need. Then you work out how the people you have do or do not fit into those roles.

It is incredibly common to do it the other way around. Design the structure around the people you have. This leads to a ‘whole’ that is less than the sum of its parts.

Ultimately everyone suffers; the business, you, and your team.

Next week, in the final part, we will get into how you make sure you have the right people for the right roles.

Following last week’s post, I got some questions asking for more on how you actually set your vision in practice.

I would do this in a full-day off-site meeting with my senior finance team. A whiteboard and sticky notes kind of day. These are the steps to walk through:

1. Start with the business vision (bonus points if you can pull in the CEO to deliver this live)

2. Define what finance would need to look like to deliver that vision

3. Get honest and document the current reality 

4. Identify the gaps and quantify their relative size

5. Then define what needs to change to close those gaps. 

6. Finally build a ‘who what when’ action plan. Then write it up and socialize it with the next layer down and C-Suite before you publish it to the business

7. Repeat the process every 12 months

Bottom
Bottom Line SCFO

  1. Design the structure without the people, then add the people in. Not the other way around.

  2. Look at the work, not the titles. One controller role =/= another controller role

  3. Are you designing a finance function that needs specialists or generalists? Bigger functions need specialists, and smaller functions generalists.

Office

DH from The Bay Area asked:

I'm the VP of Finance at a Series A funded startup. We have runway to Q4 and are trying to raise a Series B. Our biggest customer is consistently 60+ days late paying us and owes us ~$1M of which ~$600k is past due. It's obviously causing a big cash flow issue for us and a drag on our net working capital. We are reluctant to escalate the matter with them due to the potential of losing 25% of our revenue right when we are raising and need to continue to grow revenue (we are still expanding with them). At what point do we bite the bullet and go nuclear on them?

This is a great question, DH. It’s a classic quandary for the CFO. A tension between the unacceptable behavior of a key customer paying you so poorly, and the commercial reality that you cannot afford to lose them.

These situations tend to be sensitive and driven by a few specific details/personalities, so take my generalist advice with a pinch of salt.

But, I do have a few thoughts ranging from the tactical to the existential.

Starting with the tactical. Do you understand why the bills aren’t being paid on time? Are there any disputes on any of the invoices? Even if just being used as an excuse. Can you tighten your invoicing processes so that there can be no dispute? Can you do anything to make it easier for your customers to clear the invoices for payment? Pick up the phone to their CFO, and ask good, open questions. You’ll learn a lot.

Assuming that there is no dispute over the details, and this is merely sitting on their AP ledger and running overdue, then the question again is, why? You should assume it is caused by cashflow issues in their business. Unless you know differently.

If it’s cashflow issues you need to worry not just about cashflow, but the risk of a bad debt. If they went out of business it sounds like you would be too. You can’t have your business future in another’s hands like that. You need to know what the hell is going on. Go deep, and do your homework. Speak to credit insurers, banks, and any other businesses you know who supply them.

Another trick is to reach out to people who recently left their business/finance team. Chaotic finance teams tend to have high turnover, which means you’ll find people on LinkedIn who have recently left that you can make friends with. I’ve done this several times, it’s surprising how open people will be.

I would also want to know if your business is being internally consistent with the customer. What are your salespeople saying? Do they understand the issue? Do they know it is unacceptable? Are they creating commercial pressure to resolve it? Sounds like you need to take this from being a ‘finance issue’ to being a ‘business issue.’

Which brings me to the more existential point


If you are building a business that is so dependent on a customer who is paying you two months late, do you really have a sustainable business model? It sounds like the commercial power is in the wrong place. This will manifest in other ways. What happens when your costs go up, and you need to push through a price increase? If your pricing power is so weak, that you can be pushed around for 60 days by your biggest customer, are you really building something of value?

As CFO these are the questions I would be bringing into the board room/C Suite alongside the tactical points to resolve the issue. Maybe the CEO or CRO decides to prove you wrong and go and sort the problem out with the customer.

Good luck with the fund raise.

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Footnotes

Work with Secret CFO

And Finally

Next week, we’ll get into how you make sure you have the right people for the right roles.

If you enjoyed today’s content, don’t forget to check out this week’s sponsor Mercury.

Stay crispy,

The Secret CFO

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.

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