How to build a scalable finance organization

If you want to grow as a company, you should not do so without a plan. Because sooner or later, what you missed at the beginning will catch up with you. When it comes to building a sustainable business, you should have a structured organization in the background that can cope with rapid growth and grow without having to completely rebuild existing structures. Roman Finke from torq.partners told us what is important for a scalable financial organization.

What does “scalable” actually mean and what do you need to consider?

A scalable finance organization refers to a structure within which a company can grow as quickly as possible without costs in the back office skyrocketing. A company in which costs grow in proportion to revenue is ultimately not profitable. At the same time, it is no use relying on rigid structures right from the start, but then having to upgrade processes and personnel evenly as the company grows. The motto therefore is

constant costs with growing sales.

To achieve this, processes and structures must be stable, but at the same time remain dynamic and flexible in order to keep up the pace with the growth of the company.

After all, requirements fluctuate quickly, especially for start-ups and scale-ups: The pitch can change, there could be a strategic change of direction. Therefore, under no circumstances should you get completely bogged down before Series A, because that can create higher setup costs and even bigger problems in the worst case. To build a scalable finance organization, you should focus on flexibility and maintain growth options. At the end of the day, this will enable scaling to build a profitable business.

Staff: Which roles and topics do you need in the finance department from the beginning?

Especially when it comes to staff, the question arises at the very beginning: When do you need to fill which roles? This depends heavily on the phase the company is in and what the business model looks like. Does a company with ten employees need a dedicated finance person? Probably not yet – in the beginning, someone from the founding team can also take on this role. However, this can quickly change, for example in e-commerce. With the logistics behind it, it certainly makes sense to have someone in the finance area who is also responsible for procurement (i.e. purchasing and procurement logistics).

No matter what stage you are in as a start-up: It is essential that someone has control over the costs. Especially for small companies, financial operations are often managed by a generalist role who controls costs as well as Accounts Payable (AP) and Accounts Receivable (AR). “If you’re honest, invoicing is not that important for start-ups in the beginning – there are other sources of money – but it’s essential that you can already experience an invoicing process that works,” Roman Finke explains. This generalist function does not necessarily have to be a well-trained accountant; someone who has operations experience and basic knowledge of document entry and knows how to communicate with tax consultants might be sufficient. Especially in the beginning, you should rely on external support and not start directly with internalized accounting.

Indicators certain roles are getting important

Even if the structure of your own organization is a very individual thing, there are certain house numbers: If you have 30 or more employees, you should have someone dedicated working in finance, because the volume of documents is most likely to increase – if you have about 100 documents a month, it starts to get confusing. Even if you have good tools for administration, someone on the staff should have the skillset to implement tools and workflows within the company.

In addition to the documents, the right time for certain staff can also be determined by the turnover. Especially the debit-side process is usually much more time-consuming than the credit-side process, because the follow-up becomes more complicated. So you should consider hiring someone to directly take care of AR – according to Roman Finke, you should appoint someone for these tasks as soon as you have more than 100 incoming and outgoing documents.

What processes should be established to make the finance department work within the entire company?

There are three processes that are essential: 

1. Procurement and AP: This is where you get an overview of what costs flow through the company, which departments trigger which costs, and how your finances are structured
2. The payment process is also important: Are you able to pay quickly and efficiently? Payment methods and good invoicing are ensured here
3. Monitoring liquidity: liquidity management is essential, especially in the beginning. It is the main task of the entrepreneur to monitor how much money is left and how long the business will run with the allocated budget and runway

Liquidity planning is the result of the other two processes and the reason why you set up all these processes in advance. After all, you want to know how long the business will last and especially as a start-up, when the next financing might be needed.

How do I manage to establish finance processes company-wide?

Particularly in the case of rapid growth, the greatest challenge is to make the scalable processes accessible to the rest of the company, although they originated in the finance department. More and more staff acquired from other companies are coming into structures that are still in the process of developing. For this reason, it is necessary to create foundations that are clear from the outset. In establishing these processes, it can help to go into the onboarding of employee, present yourself there as the finance department and explain exactly what important processes take place there.

Ideas for an accessible finance department: 

• Put a presentation or organizational chart on an internal wiki (e.g. Confluence).
• An internal lexicon that breaks down common finance vocabulary
• Decision tree: “What do I do with an invoice?”
• Regular interdepartmental exchanges, such as “open office hours” or casual coffee breaks
• Cross-team meetings to discuss the status quo of business objectives

The “financial processes” concerning other departments are usually quite simple. A good setup immediately helps employees and a tool that replaces paperwork and comes with a good UI is immense help to create acceptance for these finance processes.

An open culture of communication and signaling that you want to work collaboratively also helps establish the structures and workflows of the finance department within other teams.

“You don’t want to create a finance department that operates with a raised finger,” Roman Finke explains. For the management, it’s important to build a company culture that doesn’t portray finance, controlling and accounting as the enemy. Within the company, there should be certainty and trust in the finance department – and the ability to simply ask questions. A distance between the finance organization and the other departments of the company should by all means be prevented.

How can procurement and purchasing processes be set up in a meaningful way?

History shows that companies tend to be rather reactive in purchasing. Finance departments are confronted with paid invoices or set purchase requests– and no longer have full control over costs. Therefore, in terms of growth and cash flow, it makes sense to set up a process that enables a request for specific costs.

The challenge: It takes one person to centrally manage all purchasing data, handle requests, and have the authority to enforce decisions.

The problem: Often such purchases are solved bilaterally, either a) along the lines of “I’ll quickly ask the boss” or b) according to the laissez-faire principle, where each employee has the data of the company credit card under their keyboard.

It is therefore important to centralize means of payment and to ensure that approval processes are not only lived but also tracked. Purchasing requests within an invoice management tool, for example, are something that gives more visibility and control. In this context, it also makes sense to introduce cost center accounting: Who is responsible for which expenses? This can be noted in the purchase request right away so that expenses can be put into context. Cost center or department budgets ultimately enable comparison with a target value.