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At AVL, we have many conversations with CEO/Founders about how to plan, staff, scale, and execute their Finance & Accounting (“F&A”) function. We wanted to share our experience because we recognize that building a team for growth and scale is crucial and challenging. Certainly, since AVL is a full-stack CFO firm, we have an inherent bias toward our solution as the best recommendation for almost all early-stage growth companies. Yet, it’s not always the case, and it’s more important to share the key considerations that you should evaluate when thinking about the current and future state of the finance function for your company.
The Comparison
Below, we compare two “staffing” alternatives that we commonly see.
Option 1: Hire an experienced accounting manager or controller as a full-time employee and engage a contract bookkeeper.
Option 2: Leverage a full-stack CFO firm like AVL Growth Partners that provides a team of a senior accountant, controller, and a CFO on a fractional basis.
#1 - Consider Creating a Valid Apples-to-Apples Cost Comparison in Your Analysis
When you’re comparing the merits of each of these options, first understand the relative costs of each option. For example, a reasonable market estimate puts a contract bookkeeper at about $750/month ($9K/year) and a Controller with a $130,000 base with a 15% bonus and 20% taxes & benefits cost ($175,000/year). So, this is a total finance labor cost of about $184,000/year or $15,000/month. Next, compare that cost and business needs on an apples-to-apples basis with a fractional finance solution because it improves the comparability and you’ll likely see a powerful argument for leveraging a fractional option.
#2 - Consider the Work Demands and Sequencing
We had a very recent conversation with the CEO of an early-stage company. She said, “I have a capable controller on my team, but it seems like he is stuck in the weeds and cannot get to the strategic stuff that I need. Or maybe he’s not capable of it. I’m not quite sure.”
Consider that F&A work has a “hierarchy” analogous to Maslow’s Hierarchy of Needs. In Maslow, you don’t start seeking “love & belonging” until you have secured “food and shelter.” In the F&A world, you have a sequence that looks like this:
1 - Transactional --- Enter all the transactions, compliance
2 - Controls --- Ensure functional systems, controls, reconciliations
3 - Reporting --- Produce and disseminate financial information
4 - Analysis --- Conduct financial analysis and forecasting
5 - Strategy --- Create financial strategy and plans
In other words, a Controller must nail the Transactional, Controls, and Reporting before they can turn their attention to Analysis and Strategy. And the lack of strategic guidance can be frustrating to both the Controller and the company.
#3 - Consider the Controller’s Interest & Capability
Consider whether a Controller hire is interested in dedicating a lot of their time and effort to doing the Transactional and Reporting work they did earlier in their career. It may be uninspiring to them because it provides little growth and learning.
Consider whether a Controller hire is capable of thinking strategically. Determine whether they have proven this capability in their career. There is a massive difference between building a model and having the capability (and experience) to be financially strategic.
And consider that a Full Stack Fractional CFO firm will leverage a team to divide and conquer based on experience, interest, and capability. So you’ve got the right caliber talent focused on the right type of work.
#4 - Consider How the Role is Going to Change Over the Next Two Years
When making a hiring decision, consider whether the individual can grow with the company. We often hire based on the current needs of the company and we often fail to consider what the company will need in a year or two.
By leveraging a Full-Stack fractional solution, there’s an inherent amount of flexibility in terms of scale & growth. For example, the amount of CFO “engagement” from a CFO firm can expand with scale. Additionally, you can access talent that has the experience relevant to where you’re headed, not just where you are today.
#5 - Consider Whether the Individual Will Have the Support & Resources to be Successful
You are in “build mode” right now. You are creating processes, implementing systems, and selecting strategic partners. Consider whether your internal hire has been a builder in their recent experience and has a support network to help them navigate. A Controller is “on an island” as most of your team is likely focused on product and customer.
Consider that with a Full-Stack CFO firm, there’s an entire team behind your team that shares, guides, and compares notes. At AVL, we have multiple channels in which our accountants, controllers, and CFOs can garner support and resources from their peers to help their clients. Consider the value that might bring to your company.
#6 - Consider Core Competency Focus and the Challenge of Owning vs. Renting the Finance Function
We have worked with several VCs who highly recommend that their portfolio companies take a laser-focused view of the core of the business. They want these tech companies to only hire (insource) product development, sales, and marketing professionals. Everything else is contracted (outsourced) because it’s not core (like F&A, HR, IT, Facilities, Legal, etc.).
Their rationale is 1) Be excellent at the core to be successful and 2) Reduce complexity as there is so much going on already in building product and market during the early growth stage. It does not mean that you outsource those functions forever. Instead, it means that until there is solid traction and initial scale, the company has “not yet earned the right” to take their eyeballs off of product and market.
So, consider what’s core for your business. Consider the impact of not hiring the right people or incurring turnover in the Finance function. Consider the more fixed nature of owning the F&A function compared to the flexibility of renting the F&A function as you go through a tremendously unpredictable stage of the business.
Wrap
We know of plenty of early-stage companies that have found engaged, strategic, detail-oriented, and scalable Controllers. They are out there for sure! And they are gold. However, it’s challenging, and the above six considerations serve as a solid guide for the growth/scale path for the F&A function.