There is a clear distinction to be made between growing and scaling a business. Harvard Business Review defines growth as adding revenue at the same pace as adding costs and resources, and scaling as adding revenue at a much greater rate than cost.
Successful businesses, having achieved product-market fit, are able to survive and grow exponentially without adding high overheads. They do this by creating the right business conditions, having the right people and systems in place, and having processes that can be replicated en-masse.
As a company works at a frenetic pace to meet the challenges of scaling up, the finance team plays a vital role in working alongside the management team and the wider organisation to define and execute the business's strategy. Finance’s role in capturing and analysing financial data is central to these efforts, as using data-driven insights to guide strategic business decisions becomes the norm.
By understanding the cost drivers and how they relate to the company’s plans to scale, the finance team needs to build a model that can cope with future growth. As well as traditional competencies like accounting, tax, financial reporting, and budgeting and forecasting, finance must also support the business model to effectively manage far more complex transactions. For finance teams, here are the five key scaling considerations.
1. Improve forecast accuracy
When it comes to forecasting revenue growth and profit, the greater the degree of accuracy, the better an understanding you will have of the financial requirements needed to scale. For companies that experience hypergrowth, and have to spend money quickly to keep pace with its growth, one issue is running out of cash. With solid knowledge of the business model needed to scale, and how it has performed for others, a more accurate and trustworthy forecast can be created.
According to strategic finance, Covid-19 is fundamentally reshaping how businesses and finance teams forecast. As revenues fluctuate, and businesses incur new expenses, cash reserves are more vital than ever. A rapidly changing environment means that by the time a finance team delivers the latest round of forecasts and budgets to the C-suite, they’re outdated.
It argues that finance teams need a new framework for forecasting that embraces dynamic planning, cross-departmental collaboration, and comprehensive data integration to generate more models with greater impact in less time.
Improving the accuracy of forecasting offers the scope to control costs by understanding how to optimise operations, cash flow, production, employees, and financial management. Both from a cash planning perspective, and for presenting the numbers to potential investors, it is crucial to have strong, detailed forecasting. Ultimately, the numbers are the key aspect that drive investment decisions, and the benchmarks the business will be measured by.
2. Reap the benefits of automation
By freeing up teams to work on higher-value tasks, automation is an opportunity to reduce the burden on your financial team around traditional activities. Finance stands to gain a lot from opportunities to automate in areas like budgeting, forecasting, planning, reporting, reconciliations, accounting and intercompany transactions.
Standardising the approach to finance with automation can yield greater benefits the larger you grow. Automating finance tasks gives time back to help the finance team concentrate on being a more strategic partner to the business.
For example, Robotic Process Automation (RPA) allows for a wide variety of processes to be automated in the finance teams, such as payroll, record keeping, reporting, and accounts payable and receivable. According to Gartner, as many as 80% of finance leaders have implemented RPA or are planning to, with the aim of increasing workforce efficiency, increasing cost savings, and improving accuracy and compliance.
3. Know each and every requirement
Growing a platform could mean investing resources in expanding across borders. Each new growth market has its own requirements around compliance and tax, employment, licensing and trade, and shareholders.
There will likely also be specific capital requirements and restrictions around how funds are transferred between countries. As you expand, new banking relationships will be needed that can take a while to set up, so it’s critical to have enough time. To set yourself up for success in new markets, seek suitable advice to understand all implications such as working with an advisory partner that can provide legal and regulatory knowledge.
4. Remove the heavy lifting at tax time
In every new market a business enters, there will be different tax structures and agreements with other countries to navigate. A strong transfer pricing structure is needed to manage the treatment of the transactions likely to be required between entities in different countries. As you scale your digital platform, setting this up in advance will save significant time and effort when it comes to tax.
5. Manage your cash flow better
Keeping costs down is always an imperative for finance managers and their teams, this is especially true when a business is scaling. This article gives tips on keeping costs low, and addresses the importance of collaborating with colleagues in other teams to have conversations about costs to influence decisions when they are actually taking place.
Controlling costs is an essential part of scaling but achieving hypergrowth also requires funding.
In a 2021 survey, Deloitte reported that three out of four scale-ups are confident in their current strategy and business model, but that cash flow and liquidity issues are the key concern.
To achieve your ambitions, it’s vital to stay on top of your financial situation. As you scale, your cash can be stretched across multiple jurisdictions, some with restrictions on its movement. Be aware of the limitations this may place on your future cash situation. Your funding needs will continue to change as the business grows, so it’s sensible to continually seek to improve your financial processes.
The finance team's role is pivotal in creating the conditions needed to scale a business. To learn how Assembly’s solutions can support your finance function, get your copy of our white paper, on how payment technology can help companies scale.
August 15, 2021