Josh Aharonoff
Aug 24, 2023
Welcome to another edition for Legit Numbers, where we summarize 3 articles on Finance & Accounting in bite sized nuggets.
We have a lot to unpack today!
What we’ll be covering in this edition:
The World of Finance & Accounting 🌎
The Accounting FP&A Yin Yang ☯️
Who to hire in your Startups Finance & Accounting function 👇
Let's dive in...
where numbers align, and profits shine…
I wish I had this poster when I first majored in Finance & Accounting…
There is SO MUCH opportunity in the field.
Let’s dive into each area:
🌎 ACCOUNTING
🗒️ Responsibilities include:
▪️ Producing financial statements, and managing financial operations
👥 Roles:
▪️ Bookkeeper
▪️ AP / AR Clerk
▪️ Payroll specialist
▪️ Procurement specialist
▪️ Controller
🎓 Certifications & licenses:
▪️ Certified Public Accountant (CPA)
▪️ Certified Management Accountant (CMA)
▪️ Enrolled Agent (EA)
▪️ Graduate or Undergraduate Degree in Accounting
🗣️ Common Terms:
▪️ Debits & Credits
▪️ Balance Sheet, Profit & Loss, Statement of Cash Flows
▪️ GAAP
▪️ Accrual
🔧 Common Tools:
▪️ Accounting Software
▪️ Enterprise Resource Planning (ERP)
▪️ Excel, PowerBI & Google Sheets
🌎 FP&A
🗒️ Responsibilities include:
▪️ providing projections, analyzing projections vs actuals, and drilling deep into margins & metrics
👥Roles
▪️ FP&A Analyst
▪️ FP&A Manager
▪️ VP of Finance
🎓 Certifications & Licenses
▪️ Certified Corporate FP&A Professional (FP&A)
▪️ Graduate or Undergraduate Degree in Finance, Business Administration, or Accounting, or Economics
🗣️ Common terms
▪️ Budget vs Actuals
▪️ 3 statement modeling
▪️ Board Reporting
🔧 Common Tools
▪️ Excel & Google Sheets
▪️ Microsoft Powerpoint
▪️ Tableau, PowerBI, Looker
▪️ SQL
🌎CORPORATE FINANCE
🗒️ Responsibilities include:
▪️ Identifying investment opportunities and assisting with various financial objectives
👥 Roles:
▪️ Investment Banker
▪️ Head of Mergers & Acquisitions
▪️ VP of Capital Markets
▪️ Valuations Analyst
🎓 Certifications & Licenses:
▪️ Chartered Financial Analyst (CFA)
▪️ Masters in Business Administration (MBA)
▪️ Undergraduate or Graduate Degree in Finance or Economics
▪️ Series 6
▪️ Series 7
🗣️ Common terms:
▪️ Free Cash Flows
▪️ Internal Rate of Return
▪️ EBITDA
▪️ Stock price
▪️ Market Capitalization
🔧 Common Tools:
▪️ Bloomberg Terminal
▪️ Excel & Google Sheets
▪️ MATLAB
There’s a lot more that I wanted to include, but Linkedin restricts posts to only 3k characters.
Check out the infographic to learn about it all!
Got anything to add?
they are 2 sides of the same coin 🪙
Accounting & FP&A each contains key responsibilities…
and together they make up your Finance & Accounting 🤝
So often I see these 2 sides clash
But when they work in harmony with one another, great things happen
Here’s an overview on what Accounting does
ACCOUNTING
🔸Financial Reporting - “closing out” your financial statements in your accounting software (often known as bookkeeping)
🔸AP - coordinating & processing bill payments to vendor
🔸Invoicing - sending invoices to customer, and coordinating collections
🔸Payroll - onboarding employees, approving & processing payroll, coordinating with state tax agencies (parts of this function may be handled under HR)
🔸Taxes - annual federal & state income tax filings, Delaware franchise tax, sales tax (typically not done in house at a startup)
🔸 Audit - coordinate audit with external auditing firm (usually done after Series B)
But that’s just one side of the coin. The other function is just as crucial…
FINANCIAL PLANNING & ANALYSIS (FP&A)
🔹 Projections - adding forecasted figures for all areas of the business (revenue, cash flows, ARR)
🔹 Data analysis - analyzing data to optimize for better costing / profitability
🔹 Budget vs Actuals - comparing what you had projected vs what actually took place. (My favorite area of FP&A)
🔹 Board reporting - providing the board of directors with key summaries on what’s happening…another one of my favorites
🔹 Fundraising - wowing investors, and showing them how you’ll be 100x’ing each month for the rest of eternity 🤑
What’s my #1 advice for Finance & Accounting professionals?
LEARN BOTH
There’s so much you can do when you understand how to prepare data, as well as analyze & draw meaningful insights from that data
If you’re an accountant - learn how to build a 3 statement model, or how to prepare a budget vs actuals…or a beautiful dashboard
If you’re in FP&A - learn what debits & credits are…or how cash vs accrual accounting works
I’ve seen few achieve this well, unless you’re a CFO - which would be a require you to learn both
But don’t wait till you’re a CFO. Learn today
Your career depends on it
What would you add?
Making your first hire at your startup in Finance & Accounting is a really exciting moment…
it means that you have gotten to a certain level of activity & traction that warrants a full time hire.
Let’s go over each role, and the pros and cons
➡️ Before making your first hire
Almost all startups start off hiring a fractional role / firm.
The reason is pretty simple…
There’s not enough work to go around for a full time hire…
and in reality, you need a bit of a bookkeeper, a bit of a controller, and a bit of a CFO
For an early stage startup, you can accomplish all of this while avoiding paying payroll taxes & health benefits for a few thousand a month.
Need a good recommendation on an accounting firm? Ahem…🙋
➡️ VP of Finance
This is a great first full time role to hire in house…
the idea is that the VP of finance is a perfect mix of experience (not too much where they are very expensive, and not too little where they can lead the organization)…
A good VP of finance also has a strong background in FP&A, and a decent understanding of Accounting
Typically, this hire gets brought on, and leads the full Finance & Accounting function, while managing a fractional approach
I most commonly see this around Series A
➡️ Controller
A controller is another good hire…
but to me, the challenges is the fact that:
A) Controller are very senior, so you don’t want to assign them low level work like bank reconciliations
B) Many controllers lack FP&A experience
Now…I say this in reference to what the US defines as a controller.
I’ve learned that in Europe, many consider a controller someone who has a big focus in FP&A.
Either way…a controller is a key hire in a growing startup…it’s just a matter of when there’s enough senior level accounting work to go around
➡️ Bookkeeper
A bookkeeper is a really common role that I see startups hire for…
A benefit is that bookkeepers are some of the most cost effective roles…
but at the same time, they also come with a decent level of supervision that’s needed.
If you are a founder and have a good background in Finance & Accounting, a bookkeeper may be a good hire…
but it will pull your attention more towards overseeing Finance & Accounting, which often times is not the best place for a founder to be investing his/her time
➡️ CFO
OK…now we get to the grand daddy (or mommy) of the Finance & Accounting function.
The CFO
Here’s a little secret…
with startups…CFOs are overrated
Until you’re at Series C or above…a full time in house CFO is kinda overkill
The reason being that CFOs are EXPENSIVE…
and rarely get involved in the weeds of the work
Now…ofcourse…every startup is different...and there are exceptions
I’ve also included compensation & equity numbers from Carta’s Total Comp tool for hiring someone out in San Francisco for reference…
Did I miss any roles?
I hope you gained valuable insights into EBITDA, Month End Close processes, and Revenue Forecasting with this week's edition of Legit Numbers!
If you have any questions or need further assistance, feel free to reach out. I reply to all my emails personally :)
Till next Thursday!