Building a Robust Finance Function

The truth is, your finance function is more than just compliance – it can be a powerful strategic asset. When executed effectively, finance can become a true partner to the CEO, informing product strategy, guiding capital allocation, and unlocking growth.

As one panellist aptly put it during our recent webinar, "Building a Scalable Finance Function," featuring Josh Geelan, KPMG Partner, Leanne Hegarty, KPMG Partner, and Oliver Darwin from the Investment Team at OIF Ventures: “Accountants look back. CFOs look forward.”

In this blog post, we delve into the key insights and highlights from the webinar, providing startup founders with valuable guidance on how to build a scalable finance function that supports sustainable growth and strategic decision-making.

Getting the basics right 

One of the foundational themes discussed was the importance of getting the basics right. Having a well-structured chart of accounts and the right tech stack is essential. For founders, understanding key metrics such as ARR (Annual Recurring Revenue), gross margin, and cash at bank can significantly ease the process of scaling.

By setting up these basics correctly, startups can avoid the pitfalls of financial mismanagement and ensure they have the data needed to make informed decisions.

The Role of a Scalable Finance Function

As startups grow, their financial needs evolve depending on their stage of growth. For early-stage companies, the focus is typically on tracking cash flow, managing expenses, and ensuring accurate financial reporting. As the company progresses to Series A and beyond, the complexity increases, requiring setting up more sophisticated financial systems and processes in place.

The importance of timely and accurate financial data is critical to effectively build your finance operation. Having the right systems and processes in place from the beginning can save significant costs and reduce disruptions as the company scales. This proactive approach allows startups to make strategic decisions based on reliable data.

Outsourcing vs. In-House Finance Functions

To outsource or not to outsource? That's the big question. Many founders often wonder whether they should outsource their finance function or build an in-house team. During our recent webinar, the panellists highlighted that outsourcing can be beneficial, especially in the early stages. Allowing founders to concentrate on core business activities while letting specialists handle the nitty gritty financial tasks.

Understanding the key drivers and financial metrics that fuel business growth is essential for maximising profitability. By working closely with an outsourced CFO, you can elevate your finance function, drive strategic development, and navigate the unique challenges that come with driving long-term success. 

Working shoulder to shoulder with a financial specialist not only enhances your business operations but also provides the strategic insights needed to steer your startup towards growth.

Finding the right balance is key. As the company matures, there may be a need to bring certain functions in-house to maintain control and ensure alignment with the company's strategic goals.

It’s crucial for founders to retain ownership of their financial data and not outsource all the responsibility. Understanding the financial health of your business is vital for making informed decisions and communicating effectively with investors.

The Importance of Financial Literacy

Founders need to understand their financial data and be able to speak to it confidently. This knowledge not only helps in making strategic, decisions but also builds credibility with investors. Staying informed about your finance function is essential for navigating the challenges of scaling a business.

Common Financial Pitfalls for Startups

There are a number of common hurdles experienced by startups when setting up their finance function:

1. Lack of Financial Planning: Many startups fail to create a detailed financial plan, leading to cash flow problems and unexpected expenses. It's crucial to have a clear budget and financial projections to guide decision-making.
2. Inadequate Record-Keeping: Poor record-keeping can result in inaccurate financial statements and tax issues. Startups should invest in reliable accounting software and ensure all transactions are properly documented.
3. Overestimating Revenue: Overly optimistic revenue projections can lead to overspending and cash shortages. It's important to base revenue forecasts on realistic assumptions and historical data.
4. Ignoring Compliance Requirements: Failing to comply with tax regulations and other legal requirements can result in penalties and fines. Startups should stay informed about their compliance obligations and seek professional advice when needed.
5. Underestimating Costs: Startups often underestimate the costs associated with scaling their business, such as hiring new employees, marketing expenses, and technology upgrades. A thorough cost analysis can help avoid financial surprises.
6. Lack of Financial Expertise: Many founders lack financial expertise, which can lead to poor financial management. Engaging a financial advisor or outsourcing certain financial functions can provide the necessary expertise to manage finances effectively to unlock growth opportunities.

Building a scalable finance function is a critical component of startup success. By getting the basics right, understanding the role of a scalable finance function, and making informed decisions about outsourcing versus in-house finance, founders can set their companies up for success.

Looking to strengthen your financial operations but not sure where to start? Contact the KPMG High Growth Ventures team today to see how we can help your business.