The Finance Function: Looking Back And Looking Forward

High growth companies need to have a strong finance function. You can’t drive a car (or a plane) without some instrumentation. Most importantly, you need to know when you are going to run out of gas (or electricity).

The mission critical things that must be done in the finance function are mostly accounting related functions; pay bills, make payroll, keep track of expenses, maintain the books and records of the company. These are “must dos” and you need a person who has an accounting background to do most of them. But these are all “looking back” functions in the way I think about the finance function.

What is even more important in a high growth situation is the ability to look forward, to project, and to make sure that the company doesn’t run out of money.

In order to look forward, you need to know where you are, and that requires a solid baseline derived from looking back. So one feeds the other. But they are different.

Looking forward requires modeling and it requires the ability to anticipate. An example of this is “we are going to get a big order from a new customer next month, let’s put that revenue into the model.” But if you don’t anticipate that it may take up to ninety (or more) days to collect that revenue, then you have messed up the modeling and that is the sort of rookie error that could lead to an unexpected cash crisis.

There are many reasons why a company needs a forward looking projection to run the business but avoiding the unexpected cash crisis is number on on that list in my view.

In my experience, the people who are strong at the looking back function are often not strong at the looking forward function. You may need different people to do these roles. In a large company, there are entirely different departments that do these functions. There is an accounting department and there is a financial planning department (often called FP&A).

If you are a small company and have limited resources, you will often attempt to get both the look back and the look forward from the same person. If you aren’t getting what you want in doing that, don’t be surprised. I would rather see a small company outsource the accounting work and staff for the planning/modeling work. Accounting is a bit of a commodity, many people can do it well. Seeing the future from around the corner is most definitely not commodity and if you have someone who can do that well, hold on to them, pay them well, and make sure they are happy and rewarded in the job.

Because looking forward is really where it is at in the finance function at the end of the day. That’s where the good stuff and the bad stuff mostly happen. And when it is done well, it is a thing of beauty.


Comments (Archived):

  1. johnmccarthy

    Thanks for writing about an often neglected function!

  2. PrasannaKrishnamoorthy

    For SaaS Matt Wensing is building and from what I’ve played with, it’s absolutely killer for solving the forecast challenge with multiple scenarios.

    1. Matthew Wensing

      Thanks Prasanna!I’m pretty obsessed with “forward looking” and the opportunity to productize the financial planning function out of Excel.Glad you’re enjoying the beta!

      1. Adam Sher

        Interesting concept. I threw in my name for my company. Looking forward to checking it out.

  3. awaldstein

    Critical cog in success.Heading sales and marketing for decades, my greatest ally outside of product was the finance lead as my functions drove the revenue and expense forecasts.I met religiously with the finance leads from small to public companies on a weekly basis, constantly revising, always including them in deal terms, always cognizant of the time to cut on the expense side.When I invested in a food startup in the organic space, i was that role and it honestly killed me. On one side, expertise holes on my part, on the other the cash carry for cogs and especially the variability of costs through seasonal, climate, tariff hurdles was a bear. Never again!Thanks for bringing this up.

    1. Guy Lepage

      Thanks for sharing Arnold. I feel this is the future for investors. Maybe not to that extent per se.. But you bring value and startups need that.Personally, I look for folks such as yourself who are talented and are willing to not just back me with money but they believe in either the team or the product or what have you so much that they want to participate in a small capacity.

      1. awaldstein

        Thanks.I am a strategic operator at my core and that is what I do at this stage of my career, working with a couple of projects at a semi-embedded level until there is the momentum and capitalization to build the full teams to drive this further.

        1. Guy Lepage

          That’s a heavily underrated skill. Founder(s) and team should be heads down on product and only look up every so often. Having someone like yourself involved at the beginning is beyond helpful.

    2. JamesHRH

      Great practise.‘If you don’t run the money, the money runs you…….’ Havjng Sales & Finance talk regularly keeps the CEO doing the running.

      1. awaldstein

        ‘and market…’ as that is the largest variable expense line.i always prefer to run both.

        1. JamesHRH

          Agreed – typo : brain bubble

          1. awaldstein

            It’s Sunday, very much allowed.

  4. Sarah Maltby

    It’s also important for accounting to look ahead… building scalable processes with strong controls and optimizing systems. It’s so much easier to build things right early – it’s very costly and complicated to fix them later. The same goes for the team – hire people that can help the company grow, not just the “do-ers.” I would argue it’s imperative for all leaders to hhavethe skills to look ahead.

  5. Guy Lepage

    Super relevant post. I was talking with one of our investors last week about this very topic. I’ve learned I am not good at administrative/finance work and definitely need to outsource this.What I was surprised to learn was that I am not the only startup founder with this issue. Two weeks ago I met with a larger VC firm who boasted that they handle all the admin, finance and legal for the company at the start. This is a time when all of that is more a headache than anything. As a company grows, it’s wise to pull all that away and handle it on your own.In this new landscape, self-funding (ICO’s, crowdfunding, etc.) for founders is much easier. As a result, talented investors/backers, bring the greatest value at the birth stage of a company. I’m starting to see really wise firms, becoming boutique investment firms, focusing on HR, admin, BD, etc. in order to win over founders at the early stages.I am amazed how fast some of these firms, have adjusted to this new landscape. Kudos.

  6. Philippe Platon

    Amen!Couldn’t agree more. Four essentials any CFO must have in place:- basic processes/tools in place to know who spends what,- a monthly report based on robust and fast accounting,- a weekly cash review to know how much is left and what in/out flows are pending,- a monthly updated rolling forecast to evaluate the cash runway.

  7. sigmaalgebra

    IIRC Bill Gates once said that he always wanted enough cash in the bank so that Microsoft could go for two years with $0.00 in revenue.Or, don’t commit to spending money before it’s in the bank and likely the accounts payable, etc. are up to date, the equipment that needs repair is repaired, etc.Then save a lot of thinking, estimating, guessing, worrying, planning, getting spread sheet practice, learning about stochastic optimal control, etc.I know; I know; with all that extra cash in the bank are not using it to grow the business so the growth rate is not what it should be. Okay, in some cases, that’s a biggie consideration and worth all the thinking, ….But startups tend to be such bumpy rides across such bad territory that want lots of extra food, water, gas, oil, anti-freeze, warm clothing, cash, etc. until get where are going. If are paddling a small canoe across rough waters, don’t load the canoe down to the gunnels just above the water — instead plan for rough weather.Pilots know this and have carefully planned alternate destinations and reserve fuel because history shows that the alternative is too many smoking holes in the ground.In my startup, I’m about ready to scream in frustration loudly enough to blow roofs off houses in the whole neighborhood: ALL and I mean 100% down to the last keystroke and dot, of the work unique to my startup has been fast, fun, and easy for me. But well over 90% of the time, money, and effort has been from bad hardware, bad software documentation, unexpected, unpredictable exogenous interruptions, unexpected problems, etc.Heck, backup, just backup, old backup, decades old backup, rock solid from the beginning of punched cards or just paper file folders or clay tablets, was a continual, unanesthetized, self-inflicted, root canal procedure: I could go on for 20,000 words just giving overviews of the unexpected, unreasonable problems and how I worked around them. Only in the last few weeks have I finally gotten what looks like a good solution for the beginnings of significant production.Some of the recent problems are (a) do a backup and can’t find it on the disk drive (b) try to copy a backup and can’t find the copy, (c) try to copy a backup and keep getting messages “access denied”. GD, GD, GD, It’s MY computer, and I am “denied”? It’s MY backup. and I’m “denied”? I’ve taken “ownership” of everything insight, given myself all honors, rights, privileges, capabilities in the universe, turned off system files, hidden files, and read only files, and had everything inherit all down the tree, and STILL I’m “DENIED”?????? GD. GD. With NO reason why. Hours and hours wasted, and that’s just the most recent bouts of mud wrestling. No documentation, reasons, explanations, principles, etc. It goes back to MONTHS wasted in such mud wrestling. GD. GD. I’m PISSED OFF.But that’s the way it is. So, for planning, it’s unpredictable. So, for planning expenditures, be CAREFUL. Any day might find that have to recover files, millions of them, one by one.

  8. Angelo Santinelli

    Could not agree more Fred. As you know I have been teaching Entrepreneurial Finance at Babson for many years now. I also offer an online, self-paced course called Founder Finance for non-financial founders for founders outside of Babson.

    1. Pointsandfigures

      My friend’s son is a junior there now. I think he took your class. : ) He is having an outstanding time at Babson.

      1. Angelo Santinelli

        The school is a great bang for the buck. Both the number of seniors with jobs upon graduation and the starting salaries are impressive.

        1. Pointsandfigures

          Yup. He is loving the culture. My niece just got into Northwestern, ND, Michigan (Honors College); now sorting through and trying to figure out how to pay. She doesn’t take after her uncle. Much smarter.

  9. JamesHRH

    Peter Drucker said that any job being done in your company that is not a path to being CEO should be outsourced.Seems you are applying that principle here, in a constrained resource situation.

  10. Tom Labus

    This person has to know how far the company can jump over empty space to safe landing. Caution: Not always right. Very intuitive and detailed position at the same time.

  11. William Mougayar

    The magic of looking forward with a spreadsheet is to help making the right decisions and avoid the bad ones. Typical meeting between the financial planning person and CEO:Finance: – “you can’t do that, because xyz…this is the financial impact, unless you change this…”CEO: – “what if we do that…instead of this…” CEO: – “what’s the impact of doing this…” “can you model these 2 scenarios…”

  12. Pointsandfigures

    Also model the resources you might need to service that new revenue….

  13. Mike

    Great topic. The Statement of Cash Flows, or Sources/Uses can be helpful to model cash flows in an out of the company, receivables, payables etc. I’m not an expert or an accountant but a useful tool. I think accurate projections beyond 12-18 months are probably difficult, but having the model can be an asset, even for very early companies. Beyond 24 months it is more of a strategic as opposed to operating template? Also a tool to project external funding to cash flow positive, but given the number of variables for a high growth model, probably not very accurate. Plans are useless but the planning process is indispensible.

  14. Stephen Deason

    In my experience, nothing distracts more than a cash crunch – particularly in high-growth companies – it derails strategy and leadership attention, typically when those are most needed. Cash shortfalls can also lead to terrible decision-making and behaviors. Look out the front window or you’ll likely hit something hard, or just run off a cliff and “leave no skid marks,” as Horowitz says 🙂

  15. Waseem Daher

    Disclaimer: I’m the CEO of (all we do is bookkeeping for startups), though my comment is about why you shouldn’t hire us to do the forward-looking :)> I would rather see a small company outsource the accounting work and staff for the planning/modeling work.It’s counterintuitive, but I definitely agree and here’s the framework I’d use to think about it: What tasks are capable of being solved by external providers? Aggressively get those off your plate, since your scarcest resource is time. What tasks are strategic/require your unique skill or knowledge? Keep those.The backwards-looking stuff is very easily outsourced—after a few back-and-forths, if everything has been structured well, the bookkeeper can get your books done with minimal intervention on your part. Also, because it’s their job, they’re better at it than you will be (or you should find someone else).The forward-looking work, however, requires a bunch of intimate knowledge about the future of the business—a fact base that is constantly evolving as you learn more throughout the course of operating your business every single day. (By talking to customers, seeing the performance of your sales team, etc.)The external provider doesn’t have all that additional information, so they’re not going to be able to do a better job with you, or at least, not without a lot of help.Can you sit down with an external provider and walk through all of these details, updating them each time there are changes? Yes, you certainly can—but it’ll end up consuming a ton of your time to do so, meaning it becomes a low-leverage use of your time, because you’re effectively still doing it yourself, just mediated through this other (expensive) external party.We get asked with a great deal of regularity to help out with this type of budgeting/forecasting, and my response is: “If you really want us to, we can get you some help here—but it’s going to be expensive and I think you’ll be happiest just doing it in-house, because there’s a bunch of stuff you know that is basically going to always be unknowable to us.”

  16. Paul Bianco

    First, I need to disclaim that I am the CEO of Graphite Financial, a firm that spun out of ff Venture Capital here in NY, that handles BOTH the accounting/controller and FP&A functions for our clients.I fully agree that the first internal finance hire should be that FP&A minded person (with our clients we find that hire is simply deferred longer). They then oversee and work with your outside accounting function. If your first finance hire is a controller, your next will most certainly be a staff accountant, and you still don’t have the FP&A function in place yet. That’s when things start to get very expensive vs outsourcing.As a VC myself, I saw too many companies stumble due to not being able to both truly digest the current state of the business and use that information to accurately model out the future. The most basic examples are not nailing down the true cost of selling your product or service, and not knowing how to model the difference between a booking, a billing, revenue and cash collections. As you grow, both have serious cash flow consequences.I often felt a general lack of appreciation for FP&A and in certain cases, founders viewing the financial model as a sales tool aimed at potential investors vs a tool to help run the business day to day.If interested, we have a free no strings attached 3 statement SaaS model template for companies on our website: This does account for the nuances discussed, but, should still be overseen by an FP&A person.

  17. steve mohun

    Absolutely essential and nearly impossible – I know because I tried for years. Problem lies with the nature of accounting – so many calcs – and so many changes, impossible to keep up, especially in Excel, which most people use for planning. Budgeting takes weeks and months and rolling forecasts almost as long.So, we’re fixing it. Our solution is still pre-beta, barely, and it does something genuinely unique – it’s an automated accounting solution. Enter simple data and the software updates every account for the impact. Fast, simple, accurate and it will do things that, until now, were not practical, like Cash Receipts and Disbursements, a Balance Sheet and – I don’t think anyone’s figured this one out yet, automated deferral and recognition of sales related spending (it calculates the journal entries for accounting too).Hey, nobody else bothered to come up with a robotic accounting solution that’s really the only way anyone is going to continuously plan, forecast, test scenarios and even close the month end, so we thought we’d give it a try and it really has exceeded our most ambitious expectations.Coming soon – bot-planner, look for it.

  18. Jake

    This is great information, Fred. As entrepreneurs, we are constantly trying to push “the cliff” further away. This is how to do it.

  19. Wei Leng Pointen

    Meaningful backward reporting forms the basis of meaningful forecasting (often an input into the model). A badly structured data aggregation model, is a source of frustration to Finance professionals in as much as inelegant code frustrate engineers. I’d like to add that one often overlooked fact is that if your backward looking stuff are not structured in a meaningful way (right level of granularity and right level of aggregation), then it makes future projection much more difficult. Because you’ll have to fix the past data to calculate something you’ve never measured before or have been measuring incorrectly. It’s also not realistic to make projections completely separately and with no regard to past data. Therefore, I would even argue that the financial control piece should precede the forward looking piece(provided you know what you need for the FP&A piece). The data aggregation models have to be structured/restructured in a way that allows the Finance function to scale inline with business growth. I have seen scale-ups go into a right blitzkrieg with the Finance function within the first year of getting in a CFO, not appreciating that the entire data aggregation process needs to be revamped/transformed. It’s a hard slog the first year, but gets better over time. The notion of getting just any outsourced CPA to do your accounting and then hope that it will help you do your future projections based on the way you cut and dice your reporting is somewhat “optimistic”. That said….(warning, shameless plug ahead), if anyone needs help with a finance function that is both forward and backward-looking, and a data aggregation model that is set up right from day 1,drop me a note: [email protected]

  20. sigmaalgebra

    A KEEPER. Thanks! Once again you will have saved my tail feathers, tail, guts, neck, and head.

  21. Adam Sher

    Pay up for great legal and accounting. It’s always worth it even if only for the schmuck insurance.

  22. JamesHRH

    What, meet How.

  23. Adam Sher

    the screen shot missed the rest. oh well. It’s virtually a re-post of something that’s searchable on his site.

  24. Lawrence Brass

    I think he is trying to send a message or maybe innovating in ephemeral posting.And, still missing LE and Philip.

  25. JamesHRH

    How do you know it’s him?

  26. Teren Botham

    Please share the JLM post in all its entirety . Please .

  27. Patrick

    You see trolling in that screen shot?

  28. Patrick

    Do we know that it is him deleting it rather than someone else?

  29. JamesHRH

    I’ll not care!!:-)