We’ve found that there are four key areas to take into account:
1. What do I want/need from my Finance Director and am I aware of the broader value they can bring beyond the ‘typical’ finance responsibilities? This will tie directly into the business’s growth prospects.
2. What is the current state of my finance function and financial management information?
3. If we had a Finance Director currently in place, how would my target investors benefit?
4. How should I compensate a Finance Director?
While this can feel like big picture thinking, below is a brief guide on how to answer these important questions, to enable you to assess how a senior finance resource can impact the growth and success of your business.
What value can a Finance Director bring?
Industry expectations of a high-performing start-up Finance Director have changed. As a standard, the role of an FD extends beyond simple numerical updates - they’re an operator and a strategist, painting a picture with your financials to hugely influence critical decisions. To do this accurately, they should have relevant sector knowledge and know exactly ‘what good looks like’ in your industry.
For example, an FD that can streamline your supply chain or raise cash through FX hedging could stop you from making bad spending decisions and encourage you when you are making the right ones. A good FD will not just help you realise the value of your business; they will create the value.
What do you know about your company finances now?
Outsourced finance resources are a cost-effective means of keeping your finances in clean working order, especially in the early days. However, by their nature, they can become “out of sight, out of mind” and it is important that as a business leader, you are highly attuned to the financial wellbeing of your business. Do you have regular updates on month-to-month performance, are your forecasts balanced against your budget, do you know the cash runway you have available before you need to raise again?
Having a firm grip over your finances is essential when pitching to investors. Demonstrating a strong understanding of your business’s financial proposition is critical to securing the best possible round at the strongest valuation. If you feel unable to communicate the above with a level of confidence and expertise and you are heading into a funding round, or are planning one in the future, it is worth considering senior financial resource.
What value do investors get from a business that already has a Finance Director?
Investors are also “numbers people” – a significant contributor to their investment decision is the business’s current financial situation and future projections. If a business has clearly presented finances, it is much easier for an investor to assess fit and their anticipated risk / return. This reduces risk on both sides and enables a more transparent negotiation to take place, ensuring you are accepting offers from the right investors for the right reasons.
Raising equity capital is also an extremely resource intensive process that relies on momentum. An experienced FD that is already familiar with the business will be well-positioned to answer investors’ questions and keep the process moving.
Bringing in external equity capital also adds to the company’s financial complexity and investors often require regular, well-presented and error-checked financial information. Bringing an FD on board post-investment can leave an uncomfortable gap, at a time the business is attempting to deploy capital and accelerate growth.
How should I compensate a Finance Director?
Finance Directors are not cheap, but the great ones cover their costs extremely quickly. FDs are experts in streamlining cost efficiencies, spotting wider revenue opportunities and will typically cover their costs within their first year with you. It can be a significant upfront cost but if you can cope with the short term spend, the long-term gain will be worth it. Salaries can vary hugely across this space and in many cases, you must ‘spend to save’.
FD compensation typically breaks down into three categories: salary, bonus, and equity, which are often treated as a set of balancing scales. A willingness to be flexible across these three areas can be a mechanism for assessing candidate commitment. Equity, which may be in the form of ordinary shares or share options, varies according to owner discretion; salary and bonus on the other hand typically range between £100,000 - £150,000 per annum in base salary plus between 10-50% in bonus. A larger equity stake may compensate for a lower base salary and vice versa.
In summary, there is no golden rule on when you should hire an FD and there are numerous success stories of businesses that have hired their finance leadership both before and after fundraising. However, having a firm understanding of your business’s financials is critical to raising equity funding and managing investor relations thereafter; and hence, the timing of appointing an FD is more closely linked to the financial health and complexity of the business. Understanding this is ultimately instrumental in both the success of the hire and the overall longer-term success of the business.
Charlie Ruck leads the Start-up and Venture Capital Finance practice at Dartmouth Partners, a leading recruitment consultancy with specialisms in finance and private equity. Charlie works with CEOs, Founders, Investors and CFOs of start-ups, scale-ups and VC funds on their hiring strategies.
