Finance and Accounting Considerations for Businesses in Growth Mode

Finance and Accounting Considerations for Businesses in Growth Mode

by Gregory R. Smith

By definition, even the newest startup is in growth mode. But as your company starts to mature you may find yourself growing faster than expected. Or maybe your business has been around for a while but suddenly youโ€™re seeing rapid growth thanks to a hotter marketplace or the departure of a key competitor. Or you have a new CEO who wants to prioritize growth. In all these scenarios, companies face similar issues.  

If youโ€™re not already working with a fractional CFO, this is an ideal time to team up with a business-minded advisor whose financial and accounting knowledge can strengthen your growth plan.

When should you bring in a fractional CFO?

  • When you want one but do not think the workload warrants a full-time employee.
  • When youโ€™re in growth mode and have a controller or accounting manager but donโ€™t believe they can adequately support your growth plan.
  • When youโ€™re a startup owner/CEO looking for additional knowledge related to finance or business.

Scaling From Where You Are To Where You Want To Be

Many CEOs may benefit from gaining additional financial knowledge and experience to effectively steer accelerated growth. An experienced fractional CFO already knows what you are going to need. They have seen firsthand what works and where the pitfalls lie at other companies. A CFO experienced in your industry brings additional โ€œinsiderโ€ guidance to help your company be more competitive right from the start.

If your business is in crisis mode due to growing pains, a fractional CFO can help restore calm by shoring up accounting processes so you donโ€™t lose control.

You want to scale up as smoothly as possible. However, in the real business world, there are always challenges that need to be addressed or problems that need to be fixed so you can grow. These issues may be obvious, or they may be more nuancedโ€“things you may not recognize as red flags but an experienced fractional CFO will quickly spot.

Growth mode companies may still require outside funding. A fractional CFO can explain what financing should be like for you at this point, and how to achieve that. You might need to obtain a line of credit, find additional investor money, take out a working capital loan, or borrow to add a new warehouse or another production line to your manufacturing facility.

Assessing Your Internal Team

A CFO can review your financials and your strategic plan together to ensure you have a sound foundation for growth and determine whether youโ€™re ready for the next stage. Are there still things you need to do to get there?

They will work with your existing team and assess their growth capabilities. For example, letโ€™s say your goal is to go from $10 million in annual revenue to $25 million over the next three years. The office manager or controller who has been handling your accounting up till now may not have the training to set up and implement more complex accounting or handle higher volumes of transactions. A fractional CFO can help professionalize the finance side of your business, including department staffing needs.

Assessing Your External Team

No business succeeds on its own. You have an advisory team of lawyers, bankers, an insurance agent, and others. But are they the right choices to carry your business to the next level? As your company grows, you will require broader, more sophisticated, or specialized expertise. Thatโ€™s easy to understand, but deciding to end a relationship can be tough because often your working relationship is also personal.

An impartial fractional CFO can evaluate your advisor lineup. It may be time to:

  • Replace (or augment) your family lawyer with a corporate law firm familiar with business contracts as well as your industry.
  • Replace your local insurance agent with a business insurance brokerage expert in your industry and its risks that can offer comprehensive protection options.
  • Move to a full-service commercial bank that can handle foreign transactions, provide a bigger line of credit, and perform Treasury tasks a small bank cannot do.

Evaluating Your Corporate Structure

Owners may be able to do everything as your business grows to $5-10 million. But if you want to grow to $20 million or beyond, you will have to delegate some of your duties.

For example, you want to grow your services area because itโ€™s generating the highest margins, but you donโ€™t have a general manager to oversee that area. You wonโ€™t be able to implement your strategy until you first make a tactical decision to fill that leadership role. If you are reluctant to do that because you donโ€™t want to increase payroll or delegate that particular role, or you hired someone and it didnโ€™t work out, you risk stifling growth.

Typically, there is a need to create separate leadership roles from the CEO such as sales or engineering (R&D). It can be hard to let go, but a fractional CFO can help you see gaps and make strategically smart decisions.

This is critical because if you donโ€™t proactively expand, your momentum can stall out.  

Identifying Potential Risks

Among the most important advice a fractional CFO can deliver is how and where to look for hidden risks. Thinking ahead to avoid potential problems can keep your growth from faltering. That includes reviewing purchasing and other contracts that could pose hidden risks that cost you money or hinder your ability to grow.

Here are some examples:

  • In real estate, if your debt-to-equity ratio is too high to sustain your business in the face of rising interest rates, you could be in trouble.
  • In manufacturing, if you rely on a certain resource or vendor to provide a key product or component, what will happen if the vendorโ€™s price spikes? Or they go away? This could be potentially devastating to your business.
  • If another company enters the market with the same business model, could that put you out of business?  What can be done now to mitigate the risk?

Trusted Advisor For The Bigger Picture

Someone has to have their eye on all of the possible scenarios that could hinder growth. Your controller or office manager is probably not thinking in this way, and you may not get that advice from your auditor or your lawyer. You need an advisor who has seen for themselves the damage that problems such as rapidly rising interest rates, inflation, and labor costs can do. Someone who understands how to mitigate the potential problems.

An experienced fractional CFO has the forward-looking skills to understand what are the key risks you may face and make sure you donโ€™t get sideways with things that could slow your growth or even put you out of business.

download the financial checklist for business leaders at this link

Gregory R. Smith

Gregory R. Smith

Greg Smith is a director and practice lead of the Accounting and Management Outsourcing (AMO) group at Redpath and Company. He provides oversight and direction to each of the accounting, payroll consulting and Fractional CFO/Controller areas within AMO as well as directly providing Fractional CFO services. Greg began his career in the entrepreneurial services group at EY in audit and has been a Controller and CFO in public and private companies for over 20 years. Over that time, he has gained experience in a wide range of industries including manufacturing, services, software/internet/high tech, med tech, and real estate. Greg joined Redpath and Company in 2021.