Financial workflows

How to build a strong financial foundation as a startup’s first finance hire

Written By

Dan Kang, VP of finance at Mercury

Graphic illustration of building blocks stacking one on top of the other | Building a strong financial foundation as a startup's first finance hire | Mercury
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There comes a time in a startup’s life when the complexity and scope of its financial needs expand beyond what a founder has the knowledge, skills, or time to manage. This shift marks a critical turning point typically marked by the hiring of the company’s first full-time finance lead, a person who will be tasked with putting a financial foundation in place and optimizing (or overhauling) existing financial strategy and operations.

Joining a startup as its first finance lead can be daunting: the company might be running on an amalgamation of decisions made by accounting firms or fractional CFOs, of non-scalable processes that are now just relics of an earlier time in the startup’s history, or a combination thereof. It’s the first finance lead’s job to take stock of the existing financial landscape of the startup, and optimize and scale — or in some cases rebuild from scratch – a financial foundation that will serve the company as it continues to grow.

Here, we break down advice for first finance hires and early finance teams on laying the groundwork for success at scale.

Get aligned with the CEO

One of the first and most important things you’ll want to do when you join a company is get on the same page as the CEO when it comes to identifying what the highest leverage areas are. Depending on the stage of the company, the CEO may have been playing finance lead up until this point, so it helps to get their take on where things are working well and where they could use some work.

In many cases, the decision to bring you on as the first finance hire will have come about in response to a tipping point. It might just be the operational burden that comes with scale, or it could be particular pain points that need to be addressed, like needing someone to help make sense of acquisition spend, lay out a path for responsible hiring, dissect unit economics, or guide a strategy for how and where the company should be investing engineering resources. Understanding what the company’s pressing needs are from the CEO’s perspective will help you align on expectations, and give you a better understanding of the business and its current stage of growth.

In my case at Mercury, our CEO, Immad Akhund, had never hired or worked with a finance person before I was hired as the VP of finance. He was business savvy and had founded and operated a few other startups in the past, so he knew enough to be dangerous. But at a certain point, he knew there were specific outcomes that would benefit from bringing a full-time finance hire on board — specifically, he wanted the company to be much more metrics and goal-oriented. By getting aligned with him on that early, I identified one of my first priorities to be improving our process around objectives and key results. Here, I worked to ensure more rigor around how we quantified various team’s efforts and impact. This is something we continued to build and refine over time, but that early alignment with Immad allowed me to identify it as a core focus area early on.

In this process of aligning with the CEO, you’ll also want to keep in mind that you were likely hired to do more than just take over and improve existing financial processes — you’re meant to be a leader at the organization, too. To this end, building a strong partnership with your CEO from the beginning can be a key part of defining the impact you’ll be able to have at the company. Make sure to play an active role in communicating the areas where you know you can meaningfully add value beyond what a CEO might understand the role of the finance lead to be. Bring opinions to the table about what you’re seeing and where improvements can be made, making sure to always approach those conversations with respect and a collaborative spirit.

Remember that, for many founders, this will be their first time hiring a finance lead, so it’s a mutual learning process that you should navigate together.

Get the lay of the land

Another first order of business upon joining the company will be to get a handle on the basics of how things have been running up to this point. There will be plenty of people who have put in countless hours of hard work toward getting the company to where it is already, but it’s also not uncommon for those early years to have resulted in a lot of inefficient or siloed processes that, especially at scale, will hurt rather than help.

First, you’ll want to make sure that you’re talking to anyone and everyone who currently owns some part of your company’s financial workflows. Things you’ll want to understand better include:

  • Accounting: What is the company’s current accounting system? Close process? Who owns it? How often are the books closed, and by when? Are there any unique accounting treatments to be aware of?
  • Bank accounts: What operational accounts does the company currently have, and how are they being used? What is the company's current cash management strategy or investment policy, if any? What are unique cash flow considerations for the business? What controls are in place around who can access and move money? Does the company have any corporate cards, and how is that spend managed?
  • AP/AR: What tools are currently being used? What does the process to manage this work look like, and who owns that?
  • Customers: Who are your existing customers? Who are your largest customers? What are the contract terms, if applicable? What is your pricing model? How are customers billed? How are payments processed, and what tools are being used here, if any?
  • Vendor spend: Who are your largest vendors? How recurring are these vendors, and how do they scale? What are the company’s COGs vs. OpEx? Who owns that spend? How are purchasing decisions made today?
  • Payroll/benefits: What tools and/or services are being used to manage this? Where are your employees located? What is the process of managing payroll? How does the company handle time tracking, if applicable? What are the current benefits packages and how are they administered? How are monetary employee perks managed (e.g., a monthly wellness or lunch budget)?
  • Hiring: What is the company’s current hiring plan? How are hiring decisions made today? (Note: For most startups, hiring will be the biggest source of burn, so you want to be especially mindful about how this is managed.)
  • Capitalization: What are the basics of your cap table and debt? If your company provides employee stock options, where does the option pool currently stand? Where is the 409a managed?
  • Forecasts: What is the current financial forecast? (Note: Because you’re the first finance hire, it’s very possible that there won’t be anything robust here, but the CEO likely has something they’ve been using to understand runway, at the very least.)

Going down this list, some of the items (e.g., hiring decisions and some level of cash flow forecasting) will probably sit with the CEO, which means you’ll cover it in early alignment conversations. But it’s also likely that a lot of financial processes will have been outsourced at one point or other for the sake of simplicity, so your conversations will most likely need to include external bookkeepers, PEOs, and/or tax advisors. The goal here is to do a deep dive into the company’s current financial operations, taking the time to listen and understand what currently happens while also clearly communicating your vision and priorities for how to uplevel the finance function going forward.

Outside of finance, it’s also important during your first weeks and months at a company to get a strong handle on the company’s product, target customer, growth strategy, and operations. Finance touches everything, so you need to understand how the company works as a whole in order to be able to plug into everything seamlessly. This means knowing what the company’s ICP (ideal customer profile) is and how big the market is, as well as what the main acquisition channels currently are and what the cost and scale of acquisition are. It means familiarizing yourself with the existing product offering and how it solves user pain points.

When I joined Mercury, one of the first things I did was spend a few hours in our product, just clicking around on everything. I took notes on what was good, what could be better, and what might be worth exploring in the future. I then organized these notes and shared them out with the executive and product teams, establishing an understanding that finance could be a strong partner in product development — and letting the team know that I was just as invested in the quality of our product and user experience as I was about implementing a financial strategy to guide our work.

Build cross-functional relationships

This point dovetails into building cross-functional relationships, which is another important part of getting off on the right foot as a company’s first finance hire. It’s a good idea to start by asking the CEO for a list of people you should meet with at the company across various teams. As you meet with people, ask who else you should meet with on their teams.

These conversations are an opportunity to introduce yourself while helping you get a better understanding of individual team goals, what they’re working on, the current makeup of their teams, and where they could use the most support from you. There will also be a little bit of education that needs to be done here. Startups often have lots of people who may be working with a finance lead for the first time and won’t be sure how to think about your role and ways to collaborate together, so you should help guide them through situations where you can offer value. This relationship-building process is also an important part of building trust with your team and establishing a clear understanding that you’re not simply the pursestring holder, but are genuinely interested in understanding how to help each team achieve their goals while implementing any necessary guardrails to maintain the company’s financial health as a whole.

One area in particular where I’ve enjoyed the role I get to play here, both at Mercury and my last startup, Digit, is performance marketing. The two companies share a common language of measuring and acting upon lots of rich data within ambiguity. Partnering on topics like how we approach unit economics tracking, channel-level CAC targets, multi-touch attribution, and measuring (or not measuring) brand marketing impact all require a lot of collaboration that was made possible through early relationship building and a spirit of genuine helpfulness and trust between the finance function and marketing team.

Own and improve current workflows

Once you have a strong handle on how things currently work at the company, you’re able to evaluate where there are gaps, and more importantly, how you should prioritize addressing them. There will realistically be hundreds of things you could focus on, but identifying what is critical for not just the finance function but for the company and business partners overall will allow you to determine what to tackle first.

At this point, you should also codify your plans. Set a standard for where you think each part of the finance function should be, and have a roadmap for the changes and improvements you plan to implement over time. In particular, there are two main things that it’s worth any new finance hire focus on in their first 90 days on the job:

  • Perform a teardown of the business and its health: You’re coming in with fresh eyes on the business and should really aim to dig deep on the data. This teardown should cover everything from high-level customer acquisition at the top of the funnel, all the way down to unit economics and cash runway. Go into this with curiosity and treat it as an opportunity to get smarter about the business so that you can understand how to drive the most value across the org. Plan to share out your findings with leadership so that you can test your opinions about the findings and get alignment on what the biggest opportunities are. (Note: For earlier stage companies, there will likely be decent data gaps that will influence your findings. Don’t let that block you — just use it as an opportunity to highlight to others the shortcomings of the data and why there’s a clear business need to invest in richer reporting and analytics.)
  • Build an operational forecast model: This will most likely be nonexistent when you join a company as the first finance hire — or if it does exist, it won’t be as robust as it could be. You should create a comprehensive forecast that blends data from growth/customer metrics, historical financials, hiring plan, marketing budgets, etc. all in a single place. This is an invaluable tool in aiding decision-making and goal-setting, allowing you to take more control of things like revenue and growth and helping answer questions like, “Where should we invest resources?” or “What’s the impact of pricing changes?” The model is meant to tell a financial story that anyone at the company, but particularly leadership, can use to think about the business and better understand the financial benefits and trade-offs of certain decisions. Plus, a well-built forecast is a great way to build trust with board members and investors.

As a former investment banker and private equity investor, I somewhat embarrassingly love building financial models. I view it as delivering order from chaos. At Digit, the operating model was crucial to determining how we’d ramp up marketing spend. We were seeing promising results from early marketing tests on social media channels. Given we charged a monthly subscription where payback on ad spend wouldn’t happen for months if we wanted any level of scale, the operating model was important to understand how marketing spend translated to revenue over time and how we could ramp up spend (with guardrails on expected payback and LTV/CAC) while still being able to invest in product and manage our cash runway until we were ready for our next raise. It took maybe 3-4 weeks to build, with tons of requests for the data team on different ways to measure retention, and lots of parsing through our Quickbooks data — but it ultimately became the backbone for how we made many strategic decisions during my time at the company.

Building a solid finance team

Last but not least, part of building a strong financial foundation as a startup’s first finance hire is thinking about how to build out your team from zero.

Assess which of the outsourced elements of your financial workflows make sense to be brought in-house, and which can stay where they are. This will largely depend on the maturity and complexity of your business, as well as the resources available and the company’s main priorities. For example, if your company is still proving out early ability to scale, the need to prioritize GTM hiring with a tight cash runway will definitely take priority over building a best-in-class accounting team in-house.

Apart from bringing particular functions in-house, also think about what net new roles the finance function really needs, and in what priority order — which will look a little bit different for every business. For some, it might be a strategic finance hire who can make sense of a complicated business and build powerful financial models. For another, it might be an accountant who can provide accurate and timely financials required for regulatory reporting. For another, it might be a payroll manager who can ensure accurate payroll processing for a broad, distributed workforce. Figure out what makes sense based on your unique business, and also use this as a chance to supplement your own experience and skill gaps.

Having been the first finance hire twice now, it’s interesting to contrast how team-building played out differently between Digit and Mercury. I joined Digit when it was about 30 people and saw the company grow to ~150 at the time we sold it. The business model was relatively simple (monthly subscription, all U.S.-based) and I kept accounting outsourced through the entirety of my four years there. In-housing accounting wasn’t a priority for me given the scale and complexity of the business from a financial reporting perspective. Instead, I prioritized strategic finance and business operations hires who could dig into questions around unit economics and pricing.

Mercury, on the other hand, was at about 300 people when I joined, with revenues and complexity growing rapidly with a healthy cash position. Accounting was still being outsourced despite Mercury having outgrown that approach. It quickly became my biggest priority to hire a controller who could build out an accounting function in-house, such that we could ensure more accurate and timely financials month after month.

Setting a strong financial foundation as a startup’s first finance hire is a combination of lots of things. It’s part strategy, part collaboration, part curiosity, and part operational skillset. As you get to know your company well and understand the team, business model, growth plans, cash flow trends, and streams of revenue, you’ll be able to create a powerful financial function that marries accurate reporting and financial hygiene with an intimate understanding of the team and company.

Written by

Dan Kang, VP of finance at Mercury

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