As businesses start and develop the finance function requirements and complexities change over time.
Startup
The beginning of a new business is a crucial time for the set up of a finance function. Get this wrong in the beginning and this could lead to problems in the future.
It is important you take a step back from the business at the beginning and plan your business processes so that you can record the required financial information to keep you compliant with HMRC and any regulator your business may be associated with.
We recommend you use Xero accounting software as the cornerstone to your financial information. This will record all your income and expenditure transactions and allow you to deal with your VAT submissions if you are VAT registered. Using the document storage facility built into Xero you can store all your purchase invoices and receipts, saving valuable storage space for hard copies.
In the beginning, the majority of the finance function is carried out by the business owner or by an outsourced bookkeeper, however, our top tip is to list out all the roles you believe your business will require in the next five years and then allocate those roles out to yourself as the business owner in the first instance or bookkeeper if use one.
These roles are not an exhausted list but help you envisage all the roles you could have in a future accounts team.
Finance Director
Finance Manager
Credit Controller
Purchase Ledger Clerk
Payroll Manager
Payroll Clerk
Accountant
Accounts Payable Clerk
Accounts Receivable Clerk
Accounts Assistant
As more resource is brought into the business these roles can be allocated to those people. The first bookkeeper employed may be given the responsibility of accounts payable/receivable, purchase ledger, payroll and credit control and the business owner can be in charge of all the rest.
Growth phase
As the business is in a growth phase the finance department must grow its resources to be able to support a higher quality of management information so that the owner can make informed business decisions based on up-to-date financial information. At this phase, it would be recommended that quarterly management information is prepared and Key Performance Indicators (KPI) are established to help maximise business performance.
During the growth phase, as more resource will be required and more people will be required to fulfil the expanded roles, you should be considering a more experienced accountant to take on the organising of a busy finance function and allowing them to take on an accounts assistant role to assist with the day to day operations. This will require a degree of training for those individuals on the finance systems set out in the startup phase.
Maturity
Once a finance department has entered a maturity phase it will likely have all the roles filled by specific people led by a Finance Director who reports to the shareholders and is supported by a number of people within the team.
The challenge with this phase is retaining these people, you have invested a lot of time training and getting them up to speed with your business needs. Staff turnover in the world of finance can be as high as 20% meaning you could be replacing 1 in 5 of your team every year. This can be expensive with recruitment agencies charging as much as 30% of a first-year salary to find the right individual and that’s before taking into account training costs, lost time in getting them up to speed.
Therefore you must incentivise and reward your people. This can be done by making sure they are getting the right remuneration package, in terms of both pay and benefits. It may also be worth considering an Enterprise Management Scheme (EMI) where key team members can access shares in the company in a very tax-efficient manner.
Outsourcing
All three phases above can be supported by looking to outsource finance roles from within the business. Armstrong Watson offers outsourcing to our clients from data entry through to a Shadow Finance Director Role.
In the startup phase, we work with clients to set up the finance function, making sure that it is fit for purpose within their specific business and will be able to grow as the business grows. We can then support by assisting with their bookkeeping and submission of VAT returns, whilst allowing the business owner to concentrate on establishing their business.
In the growth phase, we can support them by pulling together management reports and building a unique KPI stack that helps drive their business forward (read more on KPI drivers). We can do this on top of supporting their bookkeeping or work and train their internal bookkeeper that they may look to hire once they have enough work to support an employee.
Within the growth phase and maturity phase, a business will require a finance director role but this will cost a considerable amount and may only be needed a few days a month to provide the owner with a sounding board for new ideas/projects that may help drive the business forward or in the maturity phase an in house FD may leave the business a large whole in the finance department with it. Armstrong Watson has within its team a strong group of advisers that can step into this role either on a temporary, permanent or a pay-as-you-go basis.
“Outsourcing to an accountancy firm would be more expensive than employing someone” is a statement I often hear. The answer is by an hourly rate this is possibly true, however when outsourcing you only pay for what you need and you don’t pay for people when they are not busy, on holiday or off work sick. There are also no recruitment costs, no training costs and resource is like a tap when outsourcing; if you need more you get more if things calm down you reduce your level of outsourcing. For more reasons as to why outsourcing is a good idea check our article 8 Reason to outsource.
