Why is it important to effectively scale a strong finance function?

Data drives key decisions when businesses outgrow their founders – as a company grows beyond $10MM in ARR, the gut instinct, hands-on approach, and product expertise of the founder is no longer enough to ensure that the leadership team makes the right decisions. Finance becomes the gatekeeper of critical business data that informs strategic decisions and creates accountability across the organization.

You’ll need to manage external stakeholders (e.g. PE sponsor/lender) to an extent you haven’t before – as your company grows and takes investment, management of stakeholders becomes increasingly important.

Strategic financial planning improves your chances of delivering a strong return on investment – growth strategy should be informed by financial goals, especially in PE-backed environments. If you understand your targets, timelines, and risk thresholds, you can scale your business in a way that benefits both the business and its investors. 

Finance Team Evolution

What is the scope of priorities finance should maintain as it scales?

A finance team’s priorities across 5 key categories – the importance of each element depends on the company’s stage, industry, business model, and investment status. 

Priority Category	Example Capabilities to Consider
Team	• Team size, structure, and reporting structure  • Employee skill sets (especially for CFO)
Operational finance	• Accounting processes • Payroll systems and processes • Audit playbook • Cash management model • Accounts Receivable / Accounts Payable processes
Operational planning	• Management reporting • Budgeting and forecasting
Strategic planning	• Strategic finance • Data management and analysis • Investor management
Risk	• Regulatory compliance and risk management

Solicit “voice of the customer” feedback to gauge performance – the CEO and management team are the finance team’s primary “customers”. Regardless of your organization’s maturity, Finance is performing well if these individuals feel that the function:

• Provides accurate and timely information
• Acts as a reliable, collaborative, and high-quality decision-making partner
• Asks hard questions 
• Suggests helpful solutions
• Is open to new ideas

What are the first four stages of finance function evolution?

Note: These stages serve as general guidelines, but individual finance function evolutions vary 

Phase 1 (<$10M ARR or pre-PE investment)
Key Activities	Cash accounting – your primary goal is to support the operational side of the business and ensure that you don’t run out of cash. Note: FP&A doesn’t exist at this stage, so you can’t yet have a strong view of KPIs.
Team Size + Structure	Fully outsourced or 1 internal bookkeeper/accountant
Tools	Basic accounting software (QuickBooks or Xero) Note: at this stage, you might not yet have a scalable billing system

Tips for succeeding in Phase 1:

Focus on not running out of cash – if you run out of cash and can’t get the business through this crucial nascent period, more complex finance activities won’t matter. 

Be proactive with establishing mature data practices – prepare to transition to accrual accounting and make sure you’re collecting good contract-level data around ARR. While it’s difficult to capture all the information you need at this phase, any practices you establish now will save time in the future. 

Companies often deprioritize investing in Finance at this stage, but consider laying the foundation for a more robust department – as you approach $10MM ARR and consider seeking investment, you will need to implement more robust processes around financial data collection and analysis. Most <$10M ARR companies are getting ready for sale to a PE and finance can be rudimentary. 

Phase 2 ($10M-$25M ARR)
Key Activities	Key operational activities are put in place for the first time (especially after being acquired by PE), including: • Transition to accrual accounting (and your first month-end close) • First audit preparation • Improved reporting around KPIs • Developing scalable processes that support your growing organization • If you haven’t addressed it yet, make sure you are in compliance with sales tax requirements in states that require it. Consider a tool to help automate compliance • Address Cyber insurance amongst other business insurance needs Finance starts to align its focus with business priorities, resulting in: • Emerging focus on GTM metrics (including pipeline development, effectiveness of sales reps, bookings, etc.) • Standard definitions for important metrics  • More active participation in tracking sales performance
Team Changes	Team of 2-3 headcount, including: • Full-time controller  • Possible fractional CFO
Tools	• Basic accounting software (e.g. QuickBooks or Xero) • Sub-ledger systems  • Billing/ revenue (e.g. Zuora, Maxio) • Payments/ expenses (e.g. Bill.com, Ramp) • HR systems, payroll Note: Don’t rush transitioning to an ERP – focus on subledgers instead of a full ERP. You can continue using QuickBooks for much longer if you implement 3 good subledgers (see above). If you are pressured to set up NetSuite at this phase, it will require significant effort that will overstretch your limited team. Rillet is also a good option for modern SaaS GL that includes good billing and reporting capabilities.

Tips for succeeding in Phase 2:

Choose a CFO who can help your business grow, even if it means waiting – don’t hire a CFO until you’re closer to the $20MM ARR mark. Instead, prioritize hiring a strong controller and/or highly skilled accountant and supplement finance expertise through a fractional CFO.

View Finance’s emerging role as an opportunity, not a competition for influence – since many Founder CEOs don’t have experience working with strong finance groups, it’s normal for the team to experience disruption as you start to work with more strategic finance partners. Transitioning to an operator CEO and/or an experienced finance team typically changes the ways decisions are made and empowers department leaders to make better decisions in the long run.

Phase 3 ($25M-$50M ARR)
Key Activities	Foundational operational activities are streamlined: • Establish a 5-10 day month-end close process • Implement robust budgeting process • Enhance departmental reporting • Develop strategic analysis capabilities Begin to implement automated reporting solutions • If international sales or locations of employees become more relevant, ensure that you have an adequate transfer pricing process in place Finance gets involved in ad hoc strategic activities:  • Start developing an FP&A capability • Develop strong cross-functional partnerships
Team Changes	New hires: • Full-time CFO • First FP&A resource • Additional accounting team members
Tools	• ERP (e.g. NetSuite, Sage Intacct, Rillet)  • Updates to CRM and sales process enable NetSuite implementation • Excel used for FP&A initially. Consider quicker-to-implement tools like Cube, Datarails, etc. to gain efficiencies once your data is understood.

Tips for succeeding in Phase 3:

Don’t shy away from establishing cross-functional accountability – Finance should help to create a culture of accountability across the executive team and more broadly across the business to deliver on commitments. If department heads play an active role in developing their budgets, they’re more likely to hold themselves responsible for hitting their targets. 

Hire with future activities in mind – start investing in team members with PE, investment banking, and/or financial modeling backgrounds to build out your FP&A function.

Phase 4 ($50M-$100M ARR)
Key Activities	Driving efficiency in important processes like OTC and closing the books Improving cash forecasting to increase operational efficiency  Driving greater business insights through BI or collaboration with Revenue Operations Greater emphasis on business partnering with FP&A aligned with departments
Team Changes	New hires: Director or Manager of FP&A leads a team of senior analysts FP&A team members who partner with specific functions (Sales & Marketing, Product & R+D, Corporate)
Tools	FP&A tools (Anaplan or Adaptive) become helpful as the planning process becomes more complicated Note: while FP&A tools can be useful, they are becoming increasingly expensive and might not make sense for all companies.

Tips for succeeding in Phase 4:

Take a rigorous approach to integration planning – add-on acquisitions become an increasingly important focus for Accounting and Operations teams. Determine your integration plans before finalizing an acquisition to protect foundational data and important processes going forward. Integrations must be executed effectively and quickly to avoid delaying future growth plans.   

Look for team players willing to work cross-functionally as you hire – hire FP&A analysts who want to be embedded in the business itself—not people who want to work in silos. Good FP&A professionals spend at least 50% of their time outside of Finance. 

Plan further in advance (3+ years), even if priorities might change – get the board’s support for a 3-year plan. Your time horizons are long enough at this phase that any misalignments within this period could lead to serious problems.

Building your Team

How should you approach evaluating and hiring a CFO?

To scope the role requirements, define what success looks like in 12-18 months – this will help you create a clear list of requirements to guide your CFO search. If you know that you need your future CFO to lead an ERP implementation, drive the budgeting and planning process, or handle a complex integration, you should seek out candidates who have done this before.

When evaluating candidates, prioritize candidates with specific experience, not “general competence” – you can consider both experienced candidates and step-up candidates. Experienced candidates have led relevant projects before and can demonstrate that they’re capable of doing exactly what you need them to do. Step-up candidates have been involved in relevant projects and are ready to take the lead in the future. 

Note: PE-backed companies need PE-friendly CFOs – it’s difficult to justify hiring a CFO who has no experience working with PE-backed companies. Candidates who’ve only worked in VC-backed environments aren’t used to the level of outside involvement, cash constraints, and rigor regarding financial analysis and reporting as those with PE experience. On the other hand, some candidates thrive in outcome and GTM-focused PE environments. Look for positive attitudes toward investor involvement. 

How should you approach evaluating and hiring for FP&A skill sets?

To find strong business modeling skills → give candidates a modeling test during the evaluation process – incorporate a test of modeling into your interviewing process to gauge whether they’re modeling at an analyst or director level. FP&A hires must be able to understand and model your business.

To find collaborative and strong leaders → ask for anecdotes of their cross-functional contribution – candidates should be aware of the value their role brings to other departments. Ask them to articulate the value they brought to a situation and how their input helped others make better decisions. 

To identify candidates with a strong work ethic and prioritization skills → look at their track record of success – FP&A teams can have extremely busy or stressful project cycles. Candidates must be able to handle pressure and take a step back to make strategic choices about how they do their work or spend their time.   

Performance Management

How should your reporting to your PE partners and to the executive team improve as you scale?

Important Metrics to report on include:
Cadence		Key Metrics
Review weekly metrics in executive team meeting – dedicate 20 minutes per week to discussing current performance. Allow each person at the table to speak to their numbers and emerging issues and opportunities.		Operational metrics on performance across key areas such as: • Sales and marketing • Bookings • Pipeline development • Customer Success • Onboarding progress
Attend monthly operating reviews with your PE sponsor – partner with your CEO to share strategic performance updates with relevant operating and investment partners. Align with your CEO ahead of time and take 1-1.5 hours to use your metrics to tell the performance “story” of your business. No information should be shared in this meeting that hasn’t already been discussed with your executive team.		Focus areas might include:  • Sales performance vs quota • Pipeline development • Retention • ARR growth • Financial metrics and statement review • Headcount • Key business initiative progress

Meetings with PE partners evolve based on performance – monthly and quarterly operating reviews should feel more like structured conversations than formal presentations. If those conversations go poorly due to communication or performance issues, you should prepare for investors to play a more active role and require additional visibility into your reporting. Similarly, investors often become more involved if performance is extremely strong.

As your team’s systems and processes mature, you can provide more information more quickly – you can also offer more useful analysis as the data hygiene behind financial metrics improves.  

How should your financial reporting mature as your company grows?

The key elements remain consistent:

• ARR growth – this is the most important metric regardless of business maturity or size. 
• Balance sheets and cash flow statements – understanding how cash moves throughout your organization is critical for businesses of all sizes. If you receive subscription revenue annually and/or in advance, cash flow modeling is especially important. 

As  your company matures:

• Track important KPIs with more rigor or precision – as your analysis becomes more sophisticated, you can capture more and more accurate data to incorporate into your understanding of KPIs.
• Incorporate custom views for different audiences – as you create different levels of detail and perspectives for different audiences, new insights clarify metric ownership, improve performance, and drive accountability. As the business continues to grow, this will give individuals access to important data that is appropriate to their level or function. 

Cross-Functional Collaboration

How can the finance organization create cross-functional buy-in for important targets?

CEO alignment drives accountability – the CEO and CFO should act as a unified team with a shared vision for the business and an understanding of the key metrics that will help the business achieve its goals. The CEO can help hold cross-functional partners accountable, enforce regular meeting cadences, and step in to resolve potential challenges. 

Acknowledge that reporting is messy at the beginning – when a business starts reporting for the first time, the data is usually “junky”. Since it’s important to use data directly from your source systems (and not make adjustments off-line), it will take time to build a clean data culture and improve data quality. Both the CFO and CEO should set clear goals around data hygiene and timeline expectations to prevent the team from getting discouraged.  

Take a servant leadership approach – support peer success, offer assistance behind-the-scenes, and take the time to explain why accountability-driven metrics will help the business in the long run. The CFO’s ultimate goal is to enable the success of the business, and reinforcing your role as a strategic partner who wants others to succeed reinforces the need for financial discipline and accountability.  

Bring finance leaders on board before budgets are set (if possible) – it is always easier to hold people accountable for budgets they helped you create. If you join a new team after the budget is set, be patient and seek to understand the reasoning behind all elements of the budget before you actively work toward driving accountability. 

Overall

What are the most important things to get right?

Be proactive about process improvement – because many of Finance’s processes (from billing and collections to accurately reporting) rely on data that is recorded by other functions. At some point, the finance team can become reactive when it comes to dealing with non-ideal processes or data collection practices. At some point, Finance must shift its mindset and work with cross-functional partners to improve upstream processes that create Finance-specific problems down the line. 

A “finance” mindset is a cross-functional mindset – Finance needs a strong company-wide point of view in order to do its job. Seek natural collaborators when building your finance team and recognize the possible limitations of otherwise-strong candidates who are most comfortable working in a more isolated finance environment. 

What are common pitfalls?

Rushing to hire (and then mis-hiring) FP&A – FP&A usually lags the other key finance sub-functions. If you realize that you are behind in developing your FP&A team, make sure you are hiring for the right technical and interpersonal skill sets and not rushing to add headcount. 

A budget shouldn’t be made based solely on the CFO’s and CEO’s opinions – if somebody refers to the budget as “the CFO’s budget”, you’ve either failed to take others’ viewpoints and participation into consideration, or you’ve failed to secure buy-in from critical partners. Every leader in the company must believe in the budget for it to work. That means involving other leaders even if they are busy, creating a feedback loop and reconciling submissions to actual committed targets as a group.