As a business leader, it’s likely you’ve faced many challenges. The most common we see are poor cash flow, outdated processes, and a perpetual shortage of time, although there are a plethora of other challenges. And whilst, many businesses operate with one or a few co-founders solving all of these, eventually, some of these will catch up with you. While relying on instinct may have sufficed in the beginning, there comes a point where your involvement in every aspect of the business becomes unsustainable. To thrive and continue growing, your business needs structure, systems, and processes.
This is where developing a leadership team, including bringing on board a Finance Director (FD) can be a game-changer. An FD can play a crucial role in shaping the financial strategy of your business and providing valuable insights to help you achieve your goals. Adding them to your leadership dream team can help you navigate the complexities of business growth more effectively. They'll provide the much-needed framework to streamline financial operations, optimise cash flow use, and empower your business to reach new heights.
However, there are several considerations to keep in mind before making this important decision. In this blog post, we will explore key timing and resource factors that you should consider before working with an FD.
When you start out leading a business, it’s common to be involved in every aspect of the business, from product development to sales and marketing to managing the finances. But as we’ve mentioned, there comes a point where you have to spend your time on the value generating activities and in your sweet spot. Clearly, if your sweet spot is being a financial director, it may be more pertinent to read a blog about hiring a CEO or Sales Director as they may be a better addition to your team, rather than duplicating expertise. But, if you’re reading this far it’s likely your expertise is either product & technical or sales & marketing and therefore building a team who have expertise in complementary areas, like finance, is sound logic.
Some businesses are fortunate to be either self funded or investor backed allowing them to build a team out sooner and put more processes in place earlier on (we’ll come back to this later), but for many, the start of a business involves an amount of cash that is quickly being used up as the business idea is being tested and goes through the initial stages of a startups lifecycle (Founder Hypothesis; Minimum Viable Product (MVP), Initial Product-Market Fit). During these phases, a business needs to test as quickly and as much as possible and whilst an FD would be valuable, it rarely makes commercial sense as the businesses primary aim is to ensure the maximum runway available on cash flow to allow the business time to find an appropriate commercial model.
In his book The Mom Test, Rob Fitzpatrick describes the ‘proof point’ as 10 customers purchasing your product who you are not directly connected to (e.g. family/friends/colleagues). Whilst we think this is the minimum standard, this number actually varies greatly across business models and the lower the purchase point of a product/service the higher number of customers often required to ‘prove’ product-market fit. This means, there is no hard and fast rule for when this has been achieved, but some propose measuring customer retention or a customer satisfaction score related to willingness to refer, such as Net Promoter Score.
Whatever you choose to use, the point can be described as
Product-market fit is achieved when a company's target market consistently purchase, utilise, and promote the company's product, resulting in significant and sustainable growth and profitability for the product.
Despite the achievement of product-market fit, there is always a continued testing and measuring process, but once recognised, if you’re growth focused, you’ll need to enter the machine creation stage. This is the stage where you evolve the business ready for significant growth by turning the business into a ‘machine’. You do this through building a team around you and through the implementation of scalable systems and processes.
This is the perfect point to bring on a finance director to support the leadership team and help with the implementation of the finance functions systems and processes. In an ideal world this would coincide with a funding round (personal, debt or equity based) which would help cover the cost of team members like an FD.
I said I’d come back to this, but some businesses already have the funding ahead of time, if this is the case, and especially if there are external stakeholders to report to, bringing an FD in earlier can sometimes make sense to support the effective management of cash and reporting. But without product-market fit, a full time FD is often overkill and even a fractional finance director (part-time) can still eat a very large chunk out of the businesses cash and therefore its cash runway.
If the business is unfunded or has limited funds then the business would benefit from an FD, but a cost/benefit analysis needs to be done to identify if it makes sense. Factors including opportunity cost should be taken into account. Where opportunity cost is the cost of someone (e.g.ceo/founder) spending their time doing one activity (e.g. creating a cash flow forecast) versus another activity (e.g. speaking to 20 new prospects). Although the bank balance might go down by hiring an FD, the time freed up for a founder with the ability to drive business could produce greater return from new sales.
In addition to timing considerations, there are also other factors that need to be considered in order to make bringing on an FD valuable and have the desired effect.
One of the primary factors to consider when deciding to hire an FD is the cost involved. The average cost of an FD in the UK can vary depending on factors such as experience, qualifications, and the level of involvement required. It is essential to research and evaluate the market rates for FD services to ensure that it aligns with your budget, business requirements and financial capacity.
Type of Work
Before bringing an FD on board, it's essential to define the scope of their responsibilities. Will they primarily focus on strategic financial planning? Or will they also be involved in day-to-day bookkeeping, administration, people management, and improving systems and processes? Clarifying the specific tasks and areas of expertise required will help you find an FD who is the right fit for your business's needs.
Consider whether your business is ready to engage with an FD effectively. Some businesses may require the FD to help them get financially prepared, while others may need an FD who can hit the ground running and provide immediate strategic guidance. Assess your current financial status and determine if you need an FD to help you build a solid financial foundation or if you're prepared for their guidance on more advanced financial matters. A common indication that an FD might be the next step for your business is when you need to be spending more time working on your business than in it, but you may be struggling to delegate tasks and let go of some of your important responsibilities. We get it, we’ve been there ourselves!
Virtual or Face-to-Face Collaboration
In the aftermath of Covid-19, flexible working environments are on the rise with 1 in 5 of the GB workforce working from home at least one day a week (Mutebi & Hobbs, 2022). With this rise, it's essential to consider whether your business can accommodate a virtual FD or if you prefer face-to-face collaboration. Virtual FDs can bring a wealth of experience and value, especially if your systems and processes are well-suited for remote oversight. On the other hand, if you believe that a physical presence is crucial for effective communication and collaboration, you may prefer an FD who can be present at your office.
Willingness to Listen
When hiring an FD, it's crucial to be open to their expertise and insights. An FD brings a wealth of financial knowledge and experience to the table, and their guidance can prove invaluable for your business's growth and success. Be willing to listen and consider their recommendations and advice, even if it challenges your current perspectives. Building a strong working relationship based on trust and open communication will foster a fruitful collaboration with your FD.
Of course, this is a two way street, so it’s also important to make sure your FD listens to you! Create a relationship based on understanding, trust and transparency and your business will thrive.
Deciding to hire an FD is a significant step for any business. Considering factors such as cost, type of work, readiness, virtual or face-to-face collaboration, and the willingness to listen can help you make an informed decision. Take the time to assess your business's financial needs and goals, and seek out an FD who aligns with your vision. With the right FD by your side, you can navigate the financial landscape with confidence, make strategic decisions, and propel your business toward long-term success.
At Stryde, we offer businesses a cost effective method to having the support of an FD at the earliest possible point in their business journey, mitigating many of the factors that often delay bringing on FD support. Check out our Packages to see if we can help you and contact us today!