Ask CEOs, founders, and investors when a startup should hire its first full time finance person and you get a variety of answers.
Some say to do so right after you’ve raised your seed. After all, there’s money to be managed!
Some say wait until your key metrics are broken and answering basic questions is hard. Not kidding!
Others advise waiting until you’ve achieved high single digits ARR and/or are approaching 100 full time employees, lest you poison your culture with finance folks that love money too much! 🤑
None of these resonate, and that’s because I don’t think there’s a common understanding of the role of the first finance hire.
Throw away any conceptions that you have of finance. Your first full-time finance hire should NOT be focused on accounting, payroll, accounts payable, accounts receivable, taxes, bank accounts, etc. They can manage all of those workstreams, but they should be outsourced and a minor part of their role. They are not strategic.
The role of your first finance hire is to grow the business through organizing frameworks and analysis.
Organizing frameworks are the support structures on which all of your analysis is built. They are the metrics and organizing principles by which you consistently monitor your business. They should be established such that they can be used repeatedly and endure over time - the more they change the less useful they become.
For a SaaS business, an example is in defining the MRR build. This involves explicitly stating how customers are counted across new business, expansion, contraction, and churn - each presenting a variety of different considerations that need to be thoughtfully approached. Other organizing frameworks include views of your funnel(s), cohort(s), and unit economics.
Then the role of finance is to drive understanding within those frameworks. I like to think of it as filling all the spaces within those frameworks with analysis. Every step across an MRR build, funnel, time period (etc) is an opportunity to ask and answer questions - with the ultimate goal being to distill the most impactful drivers of the business.
With that then as the role of your first finance hire, it becomes easier to figure out when to hire them. It comes down to one simple question; do you believe you could grow your business faster if you understood it better?
At a pre-revenue business, that’s unlikely to be true. As a business with a handful of customers still struggling to find product market fit, again that’s unlikely to be true. The best indicator: when anecdotes and customer conversations no longer tell the entirety of your business story.
That’s when you’re finally at a stage where you need a new common language by which to organize and methodically dissect your business. And that’s when it’s time to make that first finance hire. Set up the right way, that person can be an absolute force multiplier.