Understanding how to structure a financial organization and knowing when to expand can be difficult for startup founders that are focused on other parts of the business.
Stacie Faggioli shares tips on how to set up your finance team from the start and how they can work with the rest of the business to reach company goals. We talk with Stacie about her experience in corporate finance at Dropbox and as the Head of Corporate Finance at Stripe.
What led you to corporate finance? [0:07]
I had a fascinating finance professor in college who spent a few years on Wall Street, and he really brought the topic to life for us. After college I started off my career in investment banking and then moved on to private equity. After a few years on Wall Street, I really wanted to drive business decisions. So I jumped at the opportunity to join Dropbox in 2012.
What are some trends
Every finance organization is going to start with an accounting or a bookkeeping function, and then you build on top of that over time. Depending on the type of business you’re running, the organization can look quite different. A private company with steady growth will look different from a hyper-growth startup. You can get quite custom and sophisticated in how you ultimately configure your finance org.
What does your day-to-day look like? [2:21]
In my current position, I work across a number of different functions. I work on capital raises and investor relations, mergers and acquisitions, product finance, and also strategic pricing. Depending on the time of year or the projects that I’m working on, my day-to-day could look quite different.
I think what’s probably most relevant for businesses is the finances strategy aspect of what I do. The finances strategy team partners with the rest of the business to help them manage their financial performance and make sure that the company’s tracking towards its financial objectives. That entails pulling our financial performance today, analyzing how we’re tracking against our forecast, and having lots of conversations with the business to understand why are we doing better or why are we doing worse. And trying to come up with ideas for how we can be steering the company in a different way.
When should you hire a bookkeeper? [4:08]
If I were a CEO, I would want to have some sort of basic bookkeeping function from day one. As a business, everyday you make money, you spend money, and you need to know where all this money is going. A bookkeeping team or simple accounting team is the function that helps you maintain and build those records.
And what tends to come next? [4:59]
It depends on the business itself. But usually, if it’s not already a part of the accounting team, I would say basic finance operations. This would be functions like payroll, having someone who is going to pay your company’s bills, having someone who is going to manage your company’s corporate credit cards.
What size or complexity requires hiring finance operation roles? [5:26]
It depends on the business, and it depends on the founder or CEO and how much appetite he or she has for managing these aspects of the business. If you’re building software, you probably should not be spending too much of your time managing payroll. It makes sense to either outsource it, or just hire someone to take care of these things for you.
How do the various teams in finance fit together? [6:05]
The most basic components would be bookkeeping/accounting and some of these finance operational functions. After that is a Financial Planning and Analysis (FP&A) team. A Financial Planning and Analysis team serves two important functions. One is to provide you with a little bit more visibility into where you’re going next. Typically the FP&A team is at looking at forecasts and the projections for the company or the budget for the company. They also dive more deeply into helping you understand what’s driving your financial performance and how you can start to optimize your financial performance.
What makes for a great
It really starts from the tone at the top. It’s very helpful when the CEO or the founder views finance as a strategic function and views finance as an indispensable partner to the business. It’s easy to see finance as “the cop,” or the function that tells me I can’t spend any money, but they can provide a lot of helpful insights.
Are there financial triumphs or financial catastrophes that companies can learn from? [9:00]
If you just do some googling on early startups, there are a lot of stories out there of how companies did not have a good understanding of the state of their financials, and were 48 hours from payday, realized that they could not make payroll, and ultimately had to file for bankruptcy. In terms of financial triumphs, a pretty good one would be Dropbox. They were able to increase their gross margins and decrease their infrastructure spend significantly over the course of the last three years. The finance team analyzed our costs, and there were a lot of inefficiencies in the way we stored our data, and we were able to make a recommendation to the infrastructure team to rectify that.
What do startups get wrong about building their financial organizations? [10:54]
I think that there are very few things that are genuinely unfixable. But companies can save themselves a lot of pain down the road if they: one, just start thinking about it a little bit earlier, and two, have the right kind of mindset and attitude towards finance, and three, start thinking about how tools and automation can play a large part in their finance organization. Instead of relying on paper invoices or manually tracking Excel spreadsheets, there are lots of great tools out there that you can use to make your finance operations a lot more efficient.
Do you have any examples of workflows or changes that have evolved by using the right tooling? [12:12]
A simple example, Stripe is currently at the point where headcount planning is a fairly complex undertaking. We’re more than 1,000 employees distributed across 16 offices around the world. And so everyone always needs to hire more people.
The process of having a headcount budget, sending that budget out to every single team lead across the company, getting their feedback, bringing that back up to the centralized planning unit, and iterating on that plan was done in Excel spreadsheets. It was incredibly manual and so we are in the process of putting in place a hosted tool. With this, every leader at Stripe can simply go in and enter their headcount, look at their headcount numbers, and enter their headcount requests, and all of the workflow can happen in this hosted environment.
What are easy wins when setting up the financial process for a startup? [13:45]
The founder and CEO should treat some key financial metrics like revenue, expenses, burn, and ending cash balance the same way they would view other core KPIs for the business. And review it at least once a month. That would provoke the right questions and the right thoughts around, how do we evolve the finance organization?
What qualities should the first full-time financial hire have? [14:35]
The first hire should be a bookkeeper. And in terms of the right hire, it’s typically someone who is well versed in the bookkeeping tools that are available, and it’s also helpful if this person has prior experience in your specific industry.
When should companies think about hiring a controller or CFO? [15:36]
Start thinking about having a controller when there are multiple bookkeepers or multiple accountants, and you need someone to manage and coordinate all of them and make sure that all of the work goes through a QA process.
In terms of when you need a CFO, I would say once you start having more than one finance function. So you had a bookkeeping function, and now you have payroll, and you have accounts payable. It also makes sense when the CEO feels they need a strategic partner to discuss financial related matters.
What do you think about in-house versus outsourced bookkeeping? [16:54]
I’ve seen both models work really well. With an in-house person, the benefit is that you have more rapid iteration and you have more rapid responses to questions. But when the outsource bookkeeper actually has a very strong understanding of the business, or when the outsource bookkeeper makes time to meet with the CEO once a month, it can also work really well.
What finance concepts are important for founders to actually understand so they know the state of their business? [17:55]
At the very least, at the end of the month a founder should sit down and know the company’s basic financial metrics. How much money did we make this month? How much money did we spend this month? How much cash do we have in the bank? And what does that mean in terms of runway for the company? Knowing those basics would really set up further questions for the accounting and finance organization to build upon.
Stacie Faggioli is the Head of Corporate Finance at Stripe. She previously helped build the strategic finance organization at Dropbox and worked in banking and private equity.