There are few brand founders who have adequately invested in finance and accounting.
Omni channel brands are hands down the most complex financial ops of any industry. International supply chains create cash timing issues and when combined with huge SKU counts make unit costs difficult to understand. Each channel often requires its own inventory (i.e. what you sell DTC has to be separated from what you sell through Amazon which has to be separate from what you sell to Target) and each channel has its own margin structure as well as cash cycle. Add in understanding and predicting customer lifetime value and acquisition channels which swing wildly and unpredictably and then try to finance the whole thing with high interest rate debt with payback periods shorter than your cash cycle.
And this complexity sets in early. As founders expand the product catalog, expand the supply chain, expand channels, expand marketing channels, and expand financing, the financial complexity becomes exponential.
A x B x C x D x E
Good tools are essential.
But they need to be combined with good processes run by good people.
Not having good finance and accounting people is like a rally car racer who takes off without a navigator and co-pilot and then wonders how they ended up out of gas a hundred miles of wrong turns away from the finish line.
So, back to our question. How many finance & accounting people should you have?
This obviously depends on your stage and the complexity of your business model. But we can get a sense of the range by studying other companies. I looked at 155 VC backed companies and broke them out in the ranges below. My hypothesis is that VC backed companies, as a whole, have prioritized growth over cash flow and thus as a group have under invested in finance and accounting. Obviously there are exceptions as you will see in the data, but I think this holds true in my experience.
In other words, don’t have less finance and accounting than the VC backed companies.
First, let’s see what the group looks like as a whole.
But a ton of brands have zero finance and accounting headcount, which blows me away. 43 out of the 155 brands, over a quarter, have zero finance and accounting headcount.
I suppose there is an argument to be made for no finance and accounting HC at sub 10 people. And 78% of the companies at that scale make that argument. While I think this is a mistake, I will grant it is debatable.
But 68% of the companies with 10 to 25 employees having zero finance & accounting? Or being 25 - 50 employees without making one hire in this area like 29% of the companies? How do you get to 50-100 employees without any in house finance and accounting? And good God, how does a board sign off on being 100 - 200 employees and no in house finance and accounting?
So when we eliminate the finance phobic solo rally car racers, here’s what we see.
For brands that have hired finance and accounting, there is a clear trend by HC range. Almost a quarter of the headcount for a sub 10 employee brand is finance and accounting. This percentage declines to 9% at 10-25 employees and then 6% at 25-50 employees and smoothly reduces as the companies scale in size.
While the trend line feels right, I still think you should be using the above as your guide to the absolute minimum.
All this begs the question, what about brands that are NOT VC backed?
I’d love to look into that. Please send along suggestions of brands that have not taken venture so I can compile a good set and do that analysis.