Start-up finance hiring - top down or bottoms up?

I have been more comfortable and successful hiring from the bottom up!

My 2 cents.....Keep the finance function as flat as possible, as few as possible and for as long as possible. You scale up with the work and not the other way around. Since the funding function is now off your table (or at least until the next round) you can now concentrate on the nuts and bolts and really finding people that will do the work. I would rather be MORE hands on and involved in the "growing and build up" process than handing some of it to a Controller, at least to a point where my priorities shifts or there are more "strategic" use of my time.

Now all these is relative to your growth plans/projections. If it is a hockey stick, I will lean more on anticipating growth more than the "as long as possible" advice.

And btw...congratulations on the funding!

Doubt there is a definitive response. Depends on your finance operational set up and what you foresee as your near-term needs vs. your mid-long term goals. Will you be changing systems or adding international offices? Do you currently have an outsource model with a bookkeeping firm doing most of the more mundane tasks? How fast is the company planning to scale? Is billing involved or simple? Is revenue recognition involved or simple?

I was brought in after the CFO, but in my humble opinion it could have been done the other way around (and it can be argued that was the case since a more heavy CFO in turn took over from him).

You take financing and you are going to need someone who can produce numbers on schedule and owns that process. Staff will help but I don't think they would own it.

Following is an excerpt from my book, "Redesign to Turnaround Underperforming Small and Medium-Sized Business", which answers your question -

"If possible, build the management team and then bring on the staff. For example, be careful that you are not always playing catch-up. Using the example of a CFO - A business may start small and hire a bookkeeper. As needs change they will hire a Controller. If growth continues, they will hire a Manager of Financial Planning and Analysis. If in the end, an across the board specialist in accounting, finance and risk management is needed, they will hire a Chief Financial Officer. In this approach you are always playing catch-up. Usually the business owner realizes they need the next hire after an error has been made that has financial or risk ramifications."

Good luck.

So you are going to hire just one finance employee? What you would need is a person be willing to do the tasks at hand. Getting a controller who would not be willing to do the handson jobs will fail. There is no perfect answer, but in this case I would think a financial accountant will be fine.
Unless you are planning on needing a lot more people soon, then hire a controller who in turn will hire his team, but for now is willing to do more menial tasks.

I like the above suggestion of keeping it as lean as you can for as long as you can. That nice influx of cash can dwindle quicker than you think and your company is better served by putting the cash to work on customer development. Meanwhile since you will be expanding sales staff, which is smart, make sure at least one hire is fully capable of administering sales commission plans and make sure you have someone, maybe yourself, who can do sales analytics.

As a early stage CFO, my last hire has always been a Controller. A good book keeper/generalist at start up. Who can become an AR and/or AP clerk as the company grows or manage either of those as the company grows. Then an accountant who is hired with the desire and ability to grow into Controller. I never had a Controller before hitting $20 million in revenue.
With today's great accounting systems integrated with CRM/ERP folks can handle many more transactions than ever. Let that drive the decision.
Agree with Emerson, Lyle and others above, keep it flat.

Controller first. You can always find admin employees to help in the beginning with AP etc. but a controller can put the processes and systems in place, ensure internal control and proper accounting. With investors, professionally prepared financial reports will likely be expected as well. You can always hire clerical staff as the number of transactions increase but a good controller is worth their weight in gold!

Go for top down. There have been some great reasons provided above to support this opinion. I would like to offer some more.

I have had the experience of coming into smaller businesses at the top when they made the bottom up choice. Revenue recognition, inventory management, balance sheet management, human resources issues and payroll policies, (to name a few), are best handled by someone with experience. Bookkeepers are not the best choice for making decisions within those functions. They tend to rely heavily on the outside accountants who charge a lot and don't always have the insight into the business or time to help with day to day decisions. When you do eventually bring in the higher level person, he/she will wind up spending time cleaning up the mistakes that have been made over the prior years, potentially resulting in a considerable investment in time and effort simply to get the books to a point where they should already be. Bookkeepers are not called accountants for a reason. Their primary job is the posting of transactions and their experience and training do not generally provide them with the decision making capacity required in the finance department of a growth company.

You will also need someone in accounting who is able to manage the natural tensions between sales and accounting. Bookkeepers and clerical workers simply are not high enough in the food chain to effectively stand their ground when it comes time to implement controls.

Good luck with your growth plans.

Consider an underlying assumption here, which is that you need to hire full-time staff in order to get the financial information that your company needs for compliance and for management purposes.

You can use those same funds and have all of that talent NOW by going with an outsourced accounting team.

More and more businesses, especially startups, are staying lean this way while simultaneously getting access to more finance talent.

Another underlying assumption in the industry: That bookkeeping and other tactical work has to be done by a low-level person with no spark, ambition, or self-respect. An outsourced professional bookkeeper (a good one) is an expert at bookkeeping and is proud of it, and collects best practices by working with multiple clients.

Outsourced accounting teams are also useful for getting insights about what others on your industry are doing, and what other companies in your growth stage are doing.

Small company, things need to get 'done'. Hire a do-er not a thinker. If you have a round of financing, then you already have people vested who have enough of the strategic finance input for you.

Agree with others on hiring controller first, but then newly hired controller should immediately consider hiring PT A/P person to help with paying bills and other tasks so CFO and Controller can spend more time on planning, analysis, etc.. Seen too many companies that tried to hire bottom up and then, too late, find they needed a stronger skill set. Then, when person with stronger skill set is hired, they are spending 6 months--1 year trying to fix a lot of stuff. Controller will definitely need to be hands on, but if the organization is growing, they need an additional set of hands just to help get stuff done.

The amount and quality of work should dictate bottom up or top down. Having a controller first when all you have is some AP and AR work will not lead to a long term employee. The flip side, if the plan is rapid geometric expansion with complex financial constructs, then definitely "top down".

I prefer top down so each horizontal organization line can have input into the structure below. Not just in their vertical line, but across the organization.

Kieran,

You need to guage what the person will do. As you well know, the role is different in a start-up. You, for instance, do more than the traditional CFO role. If you are stepping out of the day-to-day accounting activities, you need a strong person (top down) to continue with the building blocks. If you are going to still be actively involved, you may want to consider bringing in a strong senior accountant type (bottom up).

I would hire a professional with background in finance and accounting, who can multitask, and wants to grow with the company.