Building your finance department from scratch

October 2020 | SPOTLIGHT | FINANCE & ACCOUNTING

Financier Worldwide Magazine

October 2020 Issue

Establishing a finance department is an essential step in growing a business. For many start-ups, it can be difficult to know the right time to establish the department or know who to hire, but by introducing the right systems, things will begin to fall into place. Setting up a finance function is also essential for planning, particularly forecasting and predicting cash flow, which is key to remaining profitable and keeping your investors happy.

A business’s finance function should be designed to align with its principles, adhere to best practices and be able to scale smoothly as the company grows. Additionally, technological advances have radically changed the way that finance teams can operate, at a time when COVID-19 has significantly reduced many businesses’ margin for error. So, how should businesses go about creating a modern, effective finance department from scratch?

Get the basics right

Important considerations for a nascent finance function are a bank account, payroll and accounting software. These essential building blocks are the foundation that the subsequent work of your finance department will build upon, so it is important to ensure that they are suitable for your business’s current and anticipated future needs.

A business bank account is much more than just a legal requirement. It is where you manage cash flow, pay suppliers, calculate tax and take profits, so it is prudent to make sure you get the most out of it. As you establish a finance department, consider whether your business bank account offers all the services and integrations you need, whether it is compatible with the technology you want to use, and whether its fees are competitive. It is easier to switch now rather than once the finance department is in full swing.

While many banks offer some basic features, these will not be enough for most companies. Instead, these companies can supplement their business cash account with additional tools that help them do more, such as software for payroll and accounting. In the past, keeping track of your incoming and outgoing money was a challenge, but the latest technology means that businesses are spoilt for choice. Take the time to examine the various offerings to find the solution that best aligns with your needs for features, number of users, budget and price range. Cloud platforms make it simple to stay on top of your business’s cash flow in real-time and enable several people to review the company’s figures from anywhere – which is especially helpful with remote working.

Leveraging data effectively

On a fundamental level, any finance department, no matter how hard it works, is only as good as the data it has at its disposal. Ensuring that your new finance department has access to precise and up to date (or even real-time) data ensures that errors and opportunities can be identified and acted upon quickly.

Good data is also a prerequisite to earning investment, which will be another of the finance department’s primary responsibilities. Having an accurate picture of the money that is entering and leaving the business, both in precise detail and broad overview, makes it simple to apply for a loan and increases the chances that investors will hand over their cash. Less substantive but no less important is the impression of professionalism that a finance department gives. Investors will feel more confident investing in a business with an organised, efficient finance department.

The finance department will have a unique perspective on what goes on at the business, and it is essential to guarantee them a seat at the table. Whereas a start-up places more emphasis on the personal relationships between employees, setting up a finance department is the right time to formalise processes for sharing information, raising concerns and making recommendations. When choosing these procedures, remember that they may be time-sensitive, and that a finance team working from real-time data will likely be the first to notice when something has gone wrong.

Managing expenditure

The next thing a finance department needs is a way to track and regulate spending. Many start-ups overlook spend management early on and track expenses entirely through employees, and this only becomes more chaotic as the company spends more and brings on more employees. Some businesses swing too far the other way, implementing arcane, complex internal processes.

Operating without an effective spend management solution creates a major blindspot and can seriously hamper decision making. Our research found that nearly a third (29 percent) of growing businesses in the UK and Ireland struggle when choosing what business priorities to spend on. Almost a fifth (18 percent) said that they did not have enough financial insight to make effective spending decisions.

Setting up the finance department is the perfect chance to finally implement spend management and get complete visibility on company finances. A finance department equipped with detailed, real-time spending data can effectively implement cost control, make informed decisions and drive growth. There are many options for spend management, and any system is better than no system. However, forward-looking businesses should consider spend automation, since automating repetitive tasks allows the finance department to stay lean and frees up more time for them to focus on complex, analytical tasks.

Scalability is the name of the game

Setting up a finance department is both a recognition of current needs and a preparation for the future. Although it currently feels more challenging than usual to predict what is coming next, there are still decisions that a business can make while setting up the finance department to ensure that it can scale alongside a growing business.

Choose well-maintained software that is likely to be supported for the foreseeable future. Opting for cloud-based platforms is also an advantage here since they are far more likely to receive ongoing attention – and many are even updated with new features over time. Automation is also essential for scalability since it takes care of many of the jobs that scale linearly with a growing workforce, such as receipt tracking and data input.

In addition to IT considerations, businesses must look for other potential limitations to the systems they choose. Consider how the different finance systems fit together, and what would happen if you needed to change any individual part. Ask yourself whether the same system that works with your current number of employees would still function if your workforce doubled.

The finance department’s power

Without an effective finance function, it is almost impossible for a business to succeed. Conversely, a finance department that is firing on all cylinders can increase profitability, ensure long-term sustainability, streamline processes and supercharge growth. Take the time to make the right choices early on, from the right software to the right structure and procedures, and you will reap the rewards, both immediately and long into the future.

Carlo Gualandri is the founder and chief executive of Soldo.

Carlo Gualandri

Soldo