The Role & Responsibilities of the Finance Function

Welcome to the first installment in an exciting new series of articles. Throughout this series, we’ll explore the characteristics of the finance function in different business models and stages of company growth.

Typically, advice on scaling-up an organisation focuses on hiring, business development and strategy, and company culture. Most business leaders think first about growing revenue and expanding to new territories, naturally.

And there’s a clear lack of guidance for scale-up finance leaders. So in this series, we’re going to answer several key questions:

• What is the finance function?

• How is this different for specific business models?

• What are the biggest challenges for building a scalable finance function?

We’ll look at a handful of business models including business-to-business, direct-to-consumer, marketplace, and enterprise. Each is different in its own right, so we need to tackle them individually.

To do that, we’ll interview experts over the coming months to get a real reference point for the kinds of systems, roles, and processes you need in each scenario. Who do you need to hire? Who do you not need to hire yet? And can you outsource specific functions?

You’ll learn how people can work best within your infrastructure, and the tools or software you need to have a well-rounded organisation.

Introduction: What’s is the finance function?

Your “finance stack” is made up of all the processes, people, roles, and software that make the finance organisation a well-rounded system. In this article, I want to set out the groundwork that’s so vital for finance in companies no matter their size or industry. To do this, we’ll answer the following questions:

• Who are our users (stakeholders)? And what do they need to know?

• What data do we need to capture? And how best to capture it?

• How must we analyse this data? And how can we do this in the best interests of the company?

Let’s begin with the first question.

Who are a company's finance stakeholders?

To properly construct an effective finance function, we want to first define the desired outcome: Who are our key stakeholders? How can we best serve their interests, and what information do they need from us?

This is, in essence, the whole purpose of the finance function. We’re here to support and guide several important partners. Only if their needs are met can the finance function operate effectively and support the business in the most effective way.

Typically, finance stakeholders fall into three main groups:

• Authorities

• Shareholders

• Management

Let’s look closer at each.

1. Authorities

Dealing with the government isn’t much fun, but it’s vital. The finance function must ensure that the company fulfils its obligations and complies with the law.

Who are they?

Authorities are usually the government, most notably the tax office(s) you’re dealing with. This might also include non-tax entities like public pension schemes, health insurance, and immigration departments (for your non-native staff).

Depending on your growth phase, you may even have multiple governments to worry about across different countries.

What do they need to know?

The most obvious and important responsibility for finance is to report on revenue and losses each tax year. This requires flawless financial data.

You need to report income and pay taxes to the authorities on time and without errors. You also want to have good governance in place so that any specific regulations in your country are met.

Why do they care?

Clearly, governments want to ensure that your company plays by the rules and pays its fair share in taxes.

What’s the impact on the business?

When these obligations are not met, the impact on the business can be severe. Which makes governments and tax officers some of the most important stakeholders in any young company. In countries such as Germany, your tax advisors are the partners to strategically work on these issues.

Which means it’s in your company’s best interest to build good relationships with authorities. Keeping smooth and open communication lines will certainly pay off in the long run.

2. Shareholders

Most startup founders place a huge emphasis on investors. These people are the gatekeepers of your funding. And because funds are so important to your management team (who we’ll talk about next), they’re equally important for finance leaders.

Who are they?

These could be business angels, family offices, venture capital funds, or corporate capital funds.

What do they need to know?

Investors require performance reports, and the finance team needs to be ready to provide these to a high standard. This is true whether you’re meeting a potential investor for the first time or reporting back to existing shareholders.

Your leadership team needs to be able to communicate its vision backed by solid data.

Why do they care?

The interest here is the overall trajectory and performance against key financial metrics. Obviously, their money is involved, so they care deeply about seeing maximum return on their investment.

But equally, most investors get involved because they love it. They want to see that the company has a bright future and a good grip on the budget at hand. And they want you to succeed.

What’s the impact on the business?

Impressive financial data - matched with a powerful company vision - will usually decide whether or not shareholders want to work with you. And if they’re already onboard, whether or not they choose to reinvest when the time comes.

Which makes financial data analysis essential.

3. Management

Informing the company’s strategy should take highest priority at the early stages. As the business grows towards (and beyond) product-market fit, you go through a large number of iterations and tweaks to both the product and the business model.

Finance should be involved in as many important strategic conversations as possible.

Who are they?

Management is the senior leadership of the business.

What do they need to know?

The most vital information for management will always relate to company performance. Is the business meeting revenue targets? Can we project growth over the next 12 months, and how does this change if we alter our strategy?

Why do they care?

Decisions from founders and managers have to be informed by data. They concern both the direction of the company mid-to-long-term, but also the most important areas of focus for right now.

A well-run finance function can prepare data on business performance - revenue, customer acquisition costs, churn, and plenty more.

What’s the impact on the business?

The potential impact is enormous. Management decisions shape the trajectory of the business, and can be the difference between success and failure. Which means the better the data you provide, the more informed these decisions will be.

Companies can’t be run on instinct alone. Even talented founders with a clear company vision need financial data - even if it’s just to support their own instincts.

How can the finance function meet the needs of stakeholders?

Broadly speaking, we can think of startup finance as having two core functions: data capture and analysis. Data capture is also known as accounting, while data analysis is commonly referred to as business intelligence or financial planning & analysis (FP&A).

Rather than simply defining these terms further, it’s more interesting to see how they relate to the key stakeholders we saw above.

What data do you need to capture and analyse to best serve them?

Capturing financial data

Accounting is really just recording financially relevant data and storing it. But even if that definition is simple, the function is incredibly important. At the very least, it’s a critical measure to keep the company out of financial and legal trouble.

To begin, the authorities need your financial data in order to assess and audit the business. If you fail to keep adequate financial records, you won’t be able to complete tax filings and almost certainly will be penalised.

These interactions between accounting and the authorities are perhaps the most fundamental aspect of the finance function. This is your domain, and it’s expected that you’ll carry this out without issues.

Shareholders typically don’t take the same granular interest in your accounts. They simply need to know that the company is well-run and that you’re not in danger of being targeted by the authorities. But they don’t really care whether every document is stored safely.

They, like management, are far more interested in your financial analysis - which we’ll see in a moment.

The difference is that leadership relies on your expertise far more often than shareholders will. Management needs you to keep the company out of trouble. And that means clean books and accurate record-keeping.

Finance is responsible for what’s known as “management accounting” - using data to guide company strategies and encourage growth. Which is where financial analysis comes in.

Analysing financial data

The second function is where the best finance teams separate themselves. The ability to produce high-level financial analysis adds incredible value to the business.

In a perfect world, finance and management teams should have a symbiotic relationship. Every meaningful decision should be informed by solid data.

Which makes the primary stakeholder for financial analysis the management team. As stated above, these are the people making impactful decisions on a regular basis.

Of course, investors also want to see what can be learned from your data. If you can accurately forecast strong growth or new revenue, you’re more likely to attract new investment.

This is where the real value of the finance function comes from.

Organisational Learning

The big question here is: “so what?” Why do you need to put this data to good use? What are the different stakeholders actually after?

I think the largest contribution any finance team can make is enabling organisational learning - that’s what management really gets excited about. The more you can act as a business partner and enhance their strategy, the more valuable a finance department becomes.

Based on this insight, you can plan for your next period using goals and a budget - again a task mostly owned by the finance function. Once you’ve established the budget, you want to check whether you’re actually meeting that budget within the timeframe you set, and whether you’re meeting your goals within that budget.

This process of calibrating and iterating enables broader organisational learning. The whole company understands the landscape better and can grow faster than ever. And all of this comes from the proper use of financial data.

Coming up: A deep dive into different business models

That was a broad overview of the finance function in virtually any growing business in the world. We now have clear definitions to work from, and each new article will provide further insight into how finance helps teams scale effectively.

Coming up in this series, we’ll look at the finance function for:

• Subscription (SaaS) businesses

• Enterprise business models

• Direct-to-consumer (D2C) companies

• Mobile applications with global audiences

• Companies with a marketplace model

We’ll also take a special look at the challenges you’ll meet when the business moves international. This is an exciting but complex transition, and presents a host of issues for finance leaders.

Overall our goal is to offer a reference point for managers who’re just building their finance teams. The finance function will neither make nor break your company, but you can learn a tremendous amount from having good data sources that enable you to win.

We want to share the nuts and bolts of being a startup CFO, because then we can start focusing on the really interesting stuff. That’s making strategic decisions based on the financial and performance information that the finance function generates.

Until next time!

More from Mastering Scale

• The Role & Responsibilities of the Finance Function by Julius Bachmann

• The Direct-to-Consumer Finance Function by Julian Lange

• How to Build the Finance Function for Hyper-Growth by Oliver Ottens

• The CFO’s Role in a Successful Mobile Business by Niels Boon

• The Finance Function in the Sharing Economy by Florence Lampe

Mastering Scale is a series of expert articles created by Julius Bachmann for CFO Connect.

Julius Bachmann is a Partner at founder coaching firm Volate, investor at Joyance Partners, and musician based in Berlin. He works intensively with entrepreneurs around Europe as a coach with a focus on personal growth, business strategy and finance.