What to consider when setting up your finance department from scratch

As a business grows, takes on new clients, and brings in new staff, it naturally becomes more complex.

What to consider when setting up your finance department from scratch

As a business grows, takes on new clients, and brings in new staff, it naturally becomes more complex. While smaller start-ups may be able to get away with an employee acting as the unofficial finance department early on, most businesses quickly reach a point where it becomes worthwhile to establish a real and formal finance team.

Doing so makes it easier to understand cash flow, tackle issues with money, convince investors, and ultimately to stay profitable. Setting up a finance department from scratch may feel daunting, but it’s actually a series of straightforward choices that should follow your business’s needs, priorities and budget. 

The fundamentals 

Every modern business needs a bank account, payroll, and accounting software. Since every other aspect of the finance department relates to these three in some way, it’s essential to make the right choices ‘ both for the present and for the direction you believe the company will take in the future. 

Without a business bank account, there is no business. It’s a legal requirement, but it’s also the hub where money enters and leaves the business, and where tax and profit are calculated. Important considerations when choosing a business bank account are its services, integrations, rates and fees, and its compatibility with services you want to use.  

Many banks have begun to offer basic finance management features, but these aren’t enough for most businesses. Instead, companies can integrate digital tools with their bank account, such as software for accounting and payroll, for better visibility and additional capabilities. 

For payroll, the government requires an app that has been approved by HMRC and recommends that it includes features for producing payslips, noting and making pension payments, options for paying weekly and monthly, and automatic registration of EPS or EYU forms with HMRC. 

When choosing accounting software, look for an option that includes integrations with the other platforms and apps that your business uses or intends to use in the future. It’s also worth considering the pricing model with an eye to the future ‘ fees based on the number of users will increase as your finance department grows, whereas flat fees that may seem expensive now can be cheaper in the long run. 

For both accounting and payroll, cloud platforms make it simple to stay on top of your business’s cash flow in real-time and enable several people to review the company’s figures from anywhere ‘ which is especially helpful with remote working.

Fortunately for businesses, there is a large marketplace of software, apps and platforms to choose from. Identifying the right choice comes down to the features you need, the number of people you expect to use the software simultaneously, and your budget. Cloud platforms have significant advantages ‘ as the pandemic has made clear ‘ such as enabling the finance department to work remotely. 

Managing data

Finance departments run on data, so ensuring that they have access to the most accurate, up to date information available is essential. Good data ensures that the department can identify issues quickly, understand how to streamline business processes and save money. 

A finance department with accurate numbers is also important when it comes to earning investment. Both banks and investors look for clear, long-term data on the flow of money entering and leaving the business. A well organised, professional finance department should have just what they’re looking for. 

Structurally, it’s important to give the finance department a say in decision making and ensure that it has a clear channel to the business’s leadership so that problems can be addressed before they escalate. The finance department will often be the first one to identify when something has gone awry and would therefore be in a good position to offer valuable input. 

A proper finance department plays a vital role in providing direction to the company. According to research by Soldo, nearly a third (29%) of growing businesses in the UK and Ireland struggle to choose which business priorities to spend on. A finance department with full insight into expenses and the most and least profitable activities can offer some guidance on this topic. 

Handling expenses 

Around one in five (18%) businesses reported that they lacked the financial insight to make effective spending decisions, according to our research. This is likely due, at least in part, to the informal nature of most start-ups’ procedure for tracking and reimbursing employee spending. While there is a strong case for setting up a spend management solution long before setting up a finance department, it isn’t too late to set the two up simultaneously. 

Setting up spend management alongside the finance department ensures that it will have complete visibility on company finances and can offer informed guidance. As with accounting software, there are many digital solutions available for this common business issue, but growth-minded businesses should consider a system which offers automation. Spend automation takes care of some of the finance department’s most repetitive tasks, allowing a relatively small staff to cater to a growing number of employees. 

Scaling up

Setting up a finance department is an acknowledgement that the business is growing and becoming more organised as well as a move that lays the groundwork for further growth. The choices you make when establishing a finance function, therefore, must account for the direction that your company intends to take in the future. 

When it comes to software, it’s important to choose modern, well-maintained options. In addition to receiving support for the foreseeable future, many software solutions ‘ particularly cloud-based ones ‘ are regularly updated with new features. Unlike local software, which may require purchasing additional licenses over time, cloud-based software is ideal for scaling since the computing occurs off-site. 

Automation plays a key role in scalability, as it allows a small finance department to remain effective as the company’s scope expands. By automating tasks like data entry and expense management, the demands on the finance department no longer increase linearly with each new hire. Instead, the team is free to do more value-generating and analytical work, further contributing to the company’s growth. 

Now is the time

At a challenging time when money is unusually tight for most businesses, it may not feel like the right time to set up a new department. However, an effective finance department quickly pays for itself in savings and increased profitability, and it’s a great way to increase the business’s long-term sustainability. Making the right choices when establishing the department ‘ from picking the bank and software to designing structure and procedures ‘ sets your business on the path to long-term success, and the sooner you get started, the better.

Carlo Gualandri
Carlo Gualandri

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