Onboarding a new FP&A Hire
“Tell me and I forget. Teach me and I remember. Involve me and I learn.”
“Tell me and I forget. Teach me and I remember. Involve me and I learn.”
Benjamin Franklin
Every business has an accounting or book-keeping function — sometimes the resource is outsourced while in other cases there is an in-house team. But many businesses, even those that have raised a Series A from venture capitalists don’t always have a dedicated resource for Financial Planning and Analysis (FP&A). Often there is a single finance lead who oversees accounting, finance and many other tasks (HR-related, tax/compliance etc.). FP&A is the important but not urgent function that often gets deprioritized when there are funding or resource constraints.
When asked about FP&A, I encourage entrepreneurs and finance leaders to hire an FP&A resource early in the life of the business. I am a strong believer in the value of FP&A and have written in a prior blog post about the importance of FP&A in enabling business leaders to make better decisions.
Recently a friend of mine mentioned he was bringing aboard the first dedicated FP&A resource at their company. He wanted to get the most out of that person and to ensure they were onboarded well (from a functional perspective). It got me thinking about how I would go about ensuring a new FP&A hire understood the business well and the tasks I would assign them over time. I volunteered to share my thoughts with my friend, which you see below.
1) Historical Financial Statements
The best starting point to understand any business.
The new hire should review two (2) to three (3) years of historical financials (if they exist) including the income statement, balance sheet and cash flow statement.
The financial statements provide insight into the “business model” of the company, by which I mean how revenue is generated and what expenses are incurred to run the business and generate revenue.
The output of this review should be a list of questions about the business and its performance that the new hire will review with their boss.
2) The Accounting Process
The FP&A hire will be working with data recorded and generated by the accounting team to do their analysis and forecasting.
Give the new hire access to the accounting system (just read only access with reporting capabilities so they don’t unwittingly change any entries.)
At some point (not critical in the early days) offer them training on the accounting system, particularly any reporting functionality.
Have the new hire understand the monthly close process by reviewing a close calendar, if one exists.
Have the new hire talk with the accounting team to understand the biggest pain points/delays in the monthly closing of the books.
Have the new hire review chart of accounts to understand what revenues/expenses are mapped to specific accounts.
Give the new hire access to the workpapers for a few monthly closes and request that they go through the back-up data supporting the journal entries on each major account.
3) Cash and Net Working Capital
Have the new hire understand the cash cycle in the business from contract close to invoice to collection.
Ask the new hire to review roll-forwards of net working capital accounts in details (AP total and aging, AR total and aging, prepaids, accrued liabilities etc.)
Ask the new hire to benchmark (if not already done by accounting) the key working capital stats (days sales outstanding, days payables outstanding, inventory turns etc.)
Ensure the new hire reviews monthly, quarterly and year-to-date cash burn and any understands any seasonality associated with cash use.
4) Reporting
Provide the new hire with and ask them to review all recent reports produced for management and the Board.
Ensure the new hire understands the current reporting cadence and content included in each report. Specifically, what is produced weekly, monthly, quarterly etc. And for what audience (finance team, internal Leadership team, CEO, Board, all investors etc.)
Ensure the new hire knows the sources of the key operational data included in reports (the financial data is from the accounting system.)
Tell the new hire about the primary pain points in producing these reports, and inform them of any data that would be nice to have which (before they joined) was hard to produce given time constraints, so that they can look into getting this data in the future.
Ask the new hire for input on additional reports worth producing.
5) Metrics / KPIs
This area has a fair bit of overlap with the reporting responsibility described above.
Ask the new hire to review all the metrics that are currently provided by finance and by other departments.
Ensure the new hire understands what metrics are being distributed regularly to the Board as well as how they are defined and calculated. Share openly if there are specific ways your business defines metrics which might not be standard.
Ask the new hire to think about and research what other metrics might be relevant to your business model that are not being produced yet (what VCs investing in the space broadly want to see and what public companies broadly in a similar space are providing their investors.)
Figure out if you need to segment your customer base (because they behave differently) and then ask the new hire to start working on segment analysis.
6) Unit Economics
Ask the new hire to review the unit economics model (if one exists.)
If not, ask them to build a unit economics model for your business to understand key drivers of revenue and expense associated with a single unit (e.g. new customer) as well as the amount of customer acquisition costs and capital investment associated with a new customer addition.
7) Budget Model / 5-Year Plan Model
Ask the new hire to review the most recent Board approved budget.
Ensure the new hire reviews any budget versus actual reports and is able to understand the sources of the key variance. If they are confused, request that they built a list of questions to ask you about past variances.
Ask the new hire to spend time with the model to understand the key drivers of the budget.
Request that the new hire make a list of what you think could be done to improve the model (make it easier to understand, faster to update, add items that are missing, simpler etc.)
Agree with the new hire on the frequency of updates to the model (what if anything should be done monthly vs. quarterly etc.) so as to have a rolling 12-month forecast that is relatively real time.
8) Financial Story / Fundraising Pitch
Provide the new hire with any recent fundraising decks for their review.
Ask the new hire to research how comparable companies with similar business models present themselves to investors (VCs often write about this, or you can review investor presentations, S-1s or 10-Ks from comparable public companies.)
Ask the new hire to think about what data would be valuable to add to a future fundraising pitch so that investors get a deeper sense of the financial story behind your business.
Onboarding is a critical part of ensuring high employee engagement and thus productivity in the role, their feeling of success and longevity with the company. Beyond the nuts and bolts of job specific onboarding, as outlined above, I strongly recommend making sure all new hires (FP&A and others) understand the vision for the company, how the company solves the problems of its customers (better than others) and how the role of each employee contributes to customer satisfaction, employee satisfaction and investor happiness. Hiring the “best” people, which all recruiters and hiring managers believe they do, is not sufficient for success. It matters what you as a manager do after a new hire joins. And remember the path to success for you and your team members is not a straight line up, but rather a winding road. So don’t give up too early.