When Should a £1m Business Hire a Finance Director?
Reaching £1 million in annual turnover is a significant milestone for any business.
But it can also be the point where the financial demands of running the company start to change.
The bookkeeping that worked when you were turning over £300,000 may no longer be enough. Your team may have grown, cash flow may be more complicated, margins may be under pressure and you're probably making larger financial decisions than you were a few years ago.
At this stage, many business owners start asking:
"Do we need a Finance Director?"
The answer isn't necessarily yes.
You may not need to employ a full-time Finance Director. But you may have reached the point where your business needs Finance Director-level expertise.
For many £1m businesses, an outsourced Finance Director can provide the expertise and strategic support required without the cost of employing a full-time FD.
What does a Finance Director actually do?
A Finance Director is responsible for much more than keeping the accounts up to date.
A good Finance Director helps the business owner understand the financial position of the company and use that information to make better decisions.
This can include:
Financial strategy
Budgeting and forecasting
Cash flow management
Management accounts
Financial modelling
Profitability analysis
Business planning
KPI reporting
Investment decisions
Funding and finance
Risk management
Business acquisitions
Exit planning
Improving financial processes and controls
The key difference is that an FD is forward-looking.
An accountant can tell you what happened.
A Finance Director should help you understand why it happened, what is likely to happen next and what you should do about it.
Does reaching £1m turnover mean you need a Finance Director?
Not necessarily.
There isn't a magic turnover figure where a business suddenly needs an FD.
A £1m consultancy with 10 employees may have very different financial requirements from a £1m manufacturing company with 40 employees, large stock holdings and significant supplier commitments.
The question shouldn't simply be:
"Has my business reached £1m turnover?"
Instead, ask:
"Has the financial complexity of my business reached the point where I need senior financial expertise?"
For some businesses, that might happen at £500,000 turnover.
For others, it might be £2m, £5m or beyond.
7 signs your £1m business needs a Finance Director
1. You're making important decisions without reliable financial information
As a business owner, you probably make dozens of decisions every week.
Should you hire another employee?
Can you afford to open another location?
Should you increase your prices?
Can you invest £100,000 in new equipment?
Should you take on a large new customer?
These decisions all have financial consequences.
If you're making them based primarily on your bank balance or gut instinct, your business may need better financial insight.
A Finance Director can provide the analysis and forecasting needed to make decisions based on numbers rather than assumptions.
2. Your turnover is growing but your profit isn't
Revenue growth sounds positive.
But increasing sales don't necessarily mean increasing profits.
You may find that:
Gross margins are falling
Staff costs are increasing
Overheads are rising
Customer acquisition costs are increasing
You're taking on lower-margin work
Operational inefficiencies are eating into profit
If your turnover has increased significantly but your bottom line hasn't followed, it's time to understand why.
A Finance Director can analyse your margins and profitability across customers, products, services or divisions to identify where your profit is actually being generated.
3. Cash flow is becoming difficult to predict
One of the biggest challenges of a growing business is that profit and cash are not the same thing.
You can have a profitable business and still run into cash flow problems.
Perhaps customers are taking 60 days to pay.
Perhaps you're buying stock before you've received payment.
Perhaps you've invested heavily in staff.
Perhaps you're paying VAT and corporation tax at the same time.
Whatever the reason, cash flow becomes increasingly important as a business grows.
A Finance Director can introduce:
Cash flow forecasting
Working capital analysis
Debtor management
Payment planning
Scenario modelling
Instead of asking:
"How much money do we have today?"
you can start asking:
"How much cash will we have in three months, and what can we do now to improve it?"
4. You're relying on year-end accounts to understand your business
Annual accounts are essential.
But they shouldn't be the primary tool you use to run your business.
If your accountant produces your accounts once a year and you only really understand your financial performance when those accounts arrive, you're looking backwards.
A growing business should ideally have regular management accounts.
These can show:
Monthly revenue
Gross profit
Net profit
Operating costs
Cash flow
Debtors
Creditors
Budget vs actual performance
Key performance indicators
This gives you the information you need to identify problems while there's still time to do something about them.
5. You don't know which parts of your business are actually profitable
At £1m turnover, your business may have several different customers, products, services or revenue streams.
But are they all equally profitable?
You might discover that your biggest customer actually produces very little profit.
Or that one particular service has a much higher margin than everything else.
Or that a particular department is consuming significant resources without generating an adequate return.
A Finance Director can help you analyse profitability by customer, product, service or department.
This can completely change the decisions you make about where to focus your business.
6. You're spending too much time dealing with finance
This is one of the biggest warning signs.
If you're the business owner and you're spending hours every week:
Reviewing invoices
Chasing payments
Checking bank transactions
Building spreadsheets
Preparing forecasts
Trying to understand your accounts
Answering finance queries
Working out whether you can afford to hire someone
you're spending valuable time on finance rather than running the business.
At £1m turnover, your time becomes increasingly valuable.
A Finance Director can take responsibility for the financial side of the business and give you the information you need without requiring you to become the finance expert yourself.
7. You're considering your next stage of growth
Perhaps you've reached £1m and have ambitions to reach £2m, £5m or even £10m.
That next stage of growth will require planning.
You may need to consider:
Recruiting more staff
Increasing working capital
Opening new locations
Investing in technology
Raising finance
Acquiring another business
Changing your pricing
Restructuring the company
Expanding into new markets
These decisions shouldn't be made in isolation.
A Finance Director can build financial models and scenarios that show you the potential impact of different growth strategies.
Finance Director vs Financial Controller vs Accountant
One of the most common questions we hear is:
"What's the difference between an accountant, Financial Controller and Finance Director?"
While responsibilities can overlap, there is a useful distinction.
Accountant - Accounts, tax and compliance
Bookkeeper - Day-to-day financial transactions
Financial Controller - Financial processes, controls and reporting
Finance Director - Strategy, planning and financial decision-making
A growing business may eventually need all of these functions.
But you don't necessarily need to employ all of them internally.
This is where outsourcing can become particularly attractive.
Should you hire an in-house Finance Director?
For some businesses, hiring an in-house Finance Director is absolutely the right decision.
But for a £1m business, it may not always make financial sense.
A full-time FD can represent a significant cost, particularly when you consider:
Salary
Employer National Insurance
Pension
Recruitment costs
Benefits
Holiday
Training
Office costs
Software
Management time
And you may not actually need a Finance Director five days a week.
You may need someone with senior financial expertise for one or two days a month, one day a week or several days a month, depending on the complexity of your business.
This is where an outsourced Finance Director can make sense.
What is an outsourced Finance Director?
An outsourced Finance Director provides the same type of senior financial expertise as an employed FD, but works with your business on a flexible basis.
Rather than paying for a full-time employee, you can access the level of expertise your business needs when you need it.
An outsourced FD might help with:
Monthly management accounts
Cash flow forecasting
Budgeting
Financial modelling
Business strategy
KPI reporting
Profit improvement
Board reporting
Investment decisions
Business acquisitions
Exit planning
They can also work alongside your existing accountant and bookkeeping team.
How much does an outsourced Finance Director cost?
The cost varies significantly depending on the level of support required.
Some businesses may need occasional strategic advice, while others require ongoing involvement in their finance function.
The important thing is to compare the value and expertise you receive, rather than simply comparing an outsourced FD's fee with an employee's salary.
For a £1m business, outsourcing can provide a way of accessing senior financial expertise without immediately committing to the cost of a full-time Finance Director.
As the business grows, the level of support can increase alongside it.
What should the finance function of a £1m business look like?
There isn't a single model that works for every company.
However, a well-managed £1m business should generally have access to:
Day-to-day finance
Accurate bookkeeping
Supplier payments
Customer invoicing
Credit control
Payroll
Financial reporting
Monthly management accounts
Profit and loss reporting
Balance sheet reporting
Cash flow information
KPI reporting
Forward-looking finance
Cash flow forecasting
Annual budgets
Financial forecasts
Scenario planning
Strategic finance
Profitability analysis
Growth planning
Investment decisions
Financial strategy
Business valuation and exit planning
You don't necessarily need four or five employees to deliver all of this.
You need the right combination of people, technology and expertise.
Don't wait until £1m to improve your finance function
One of the biggest mistakes business owners make is waiting until there's a financial problem before improving their finance function.
By the time you realise that cash flow is becoming a problem, margins are declining or costs have become too high, the underlying issue may have been developing for months.
Good financial management is proactive.
It helps you identify problems before they become problems.
That's why businesses should consider their finance function as they approach £1m turnover, rather than simply reacting once they reach the milestone.
Your £1m turnover milestone should be the start, not the finish line
Reaching £1m turnover is a fantastic achievement.
But if your ambition is to build a £2m, £5m or £10m business, your finance function needs to evolve with you.
The financial systems that worked at £250,000 turnover may not work at £1m.
And the systems that work at £1m may not be sufficient at £5m.
The objective isn't simply to produce accounts.
It's to build a finance function that gives you clarity, control and confidence as your business grows.
How Welf can help
At Welf Accountants, we work with growing businesses that need more than traditional year-end accounting.
Our outsourced finance service combines bookkeeping, management accounts, financial reporting, cash flow, credit control, tax and senior financial support into one finance solution.
Rather than simply telling you what happened last year, we help you understand what's happening now and what it means for the future.
For a growing £1m business, this can provide access to the financial expertise you need without immediately having to build a large in-house finance team.
Is your business ready for Finance Director-level support?
If your business is approaching or has already passed £1m turnover, and you're finding that your financial requirements are becoming more complicated, it may be time to look at your finance function.
Talk to Welf Accountants about creating an outsourced finance function built around your business.