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From $20 million to $50 Million: How to use finance and accounting to grow your business. (Part 2)

November 5, 2021 ROARK

Welcome to our second blog in a two-part series on using finance and accounting to grow your business from $20 million to $50 million. We are exploring how you can use finance and accounting to help your company reach its full potential. In this post, we’ll discuss some of the decisions when working with an ERP system. But first, let’s talk about insourcing and hiring your first controller!

Insourcing vs. Outsourcing

Outsourcing can be a good business practice for any company when they’re still small. You get access to accounting and finance experts without a full-time commitment and be cost-effective.

But as you grow from $20 million to $50 million, the benefits of outsourcing are quickly diminishing. It’s time to start looking at insourcing and bringing these people in-house.

At this stage, many businesses start looking to hire their first controller. It makes sense for the company’s in-sourcing efforts and is often necessary based on your industry. E-commerce and retail businesses often need to hire more staff than other businesses because they make a lot more transactions.

You’ll want to adjust accordingly, but start looking at that first controller and bringing on the staff internally to support them. An executive search firm specializing in finance and accounting can help.

Systems changes for finance and accounting

Once your team grows, then you need the systems to support that. An accounting system is one thing—-many of the people reading this probably use QuickBooks or its online equivalent. And QuickBooks is perfect for accountants and account-based professionals. But as businesses scale in size, it’s best to use an ERP system to track more departments with diverse locations.

Just as the accounting system is for a particular business area, an ERP system manages all company-wide operations. The ERP integration will allow employees to maximize efficiency and communication in a way that wouldn’t be possible with separate systems handling each aspect of business!

ERP System Selection and Implementation

Most system implementations are long, frustrating, and over budget. One of the first things to consider when implementing an ERP system is to evaluate all aspects of your team, including your customers, vendors, and employees. These are revenue-generating parts of our operations.

So if these things are going right, it is very likely there will be a tremendous benefit to your business. However, if they’re going wrong, that can also have a significant effect on your company.

There are many ERP systems that you can choose from to help your company run more efficiently. The first thing you want to do is figure out which ERP system will best meet the needs of your business and list down what process improvements or goals you hope to achieve with the new software. Consider the idea of best-of-breed software. That way, they will be integrated or a big package.

An ERP implementation should make an organization’s internal systems work better and not just replicate the old way of doing things. So sometimes that can be a little challenging, but you have to prepare well for it. Spend time looking for a change in the way you do things.

But the key is knowing what you’re working with now and what you want in the future. But for your future, you will have to work through a series of ERP systems to grow tremendously. Choose one of these middle-level ERP systems for the best results. Systems requirements are essential. Familiarize yourself with your current systems and what you will need in new ones. When developing a request for proposal (RFP), be sure to clarify the requirements in as much detail as possible.

Microsoft, SAP, and Sage all have good products. NetSuite is a popular suite too, but there are other options for industry-specific ERPs. You know, if you’re not sure, I’ll tell you: When you get into that phase, the salesperson is going to understand one thing, and you are going to understand another. But you bought the system.

You’ll want to look into that and make sure you understand. In terms of systems, it’s crucial to weigh the cost against your needs right now. An SAP is a large investment with lots of programming involved; you’re unlikely to outgrow such a system in the future. And, you will also have to upgrade.

It’s easy to find the middle way, like Goldilocks and three bears. She found that both extremes weren’t right for her, choosing just the right amount of hot or cold soups. You need to find what works best for you in terms of ERP software, too–neither getting all of it nor not using any at all.

While it’s essential to focus on inputs, don’t forget about outputs. The information powering BI tools, digital visualization tools, and reporting systems should end up in the hands of decision-makers throughout your company, tax authorities, and CPAs to help with the external investors and lenders.

The biggest mistake when implementing an ERP

I’ll share with you my biggest mistake in an ERP system implementation. My biggest mistake was that you needed to bring on the right resources. So if you look at your finance and accounting team, they’re typically at best case, 90% utilized and not uncommonly 100%. Consequently, if you assign this project to them, it will be challenging for them to complete the assignment and handle their regular workload.

And if you’re not careful, your project can get delayed. That’s going to affect everyone else — your customers, vendors, and employees. Things like inventory systems that we talked about before? The costs will go up because of the distraction on everyone in the company. In the end, you’re frustrated with staff who leave during the process.

However, the costs related to mistakes in business can be significant. By picking up on these ahead of time by adding new personnel to help implement a first ERP system, you will avoid many headaches. So, your short cost of the additional consultants to help with your ERP implementation versus your long-term ROI could be a tremendous investment for your company.

Mergers & Acquisitions (M&A)

I hope you all are starting to consider mergers and acquisitions at this stage if you want to grow your company tremendously. There is much variety in how companies attempt to grow, and there are lots to think about when it comes up.

And as you said, acquiring or selling a business. The first thing I would tell somebody is to run your company as if it were going to be sold in the future. They are best situated to maximize the value of a company while considering financing and the reporting information I mentioned before. They work to build scalable systems for data, optimize intellectual property rights, review tax implications, and anything else that could make or break an acquisition.

However, if you maintain this frame of mind and execute on it long-term, your enterprise value will be much better. In the short term, profitability will decrease due to increased upfront investments for establishing a system. The best opportunities arise when one’s not looking.

Ideally, companies are financially positioned to make a quick exit should the need arise. Unfortunately, there may be some life events that cause people to exit before they’re ready.

But one of the things from an M&A perspective I would encourage business owners to start thinking about whether they should try to execute or not. And start thinking about acquiring smaller companies.

M&A is a practice, and you don’t always get it right the first time. So if you can start with smaller businesses and look, this can be very synergistic. There, you could get businesses that could add to your product line, expand geographically, or other areas may be even ones that are hurting.

So if they’re going through a down economic time, but it has a strong base and good people to be acquired – that then goes back to an acqui-hire. In other words, an acquisition can occur because of the talent pool of those who are so attractive in terms of hiring them directly. Companies need to have the correct financials and relationships in place to take advantage of opportunities.

Conclusion

If you’ve read any of the other posts in this series, then you have an understanding of how finance and accounting can be used to grow a company from a startup to $50 million. In this blog post, we talked about some of the decisions when working with ERP systems. We also discussed in-sourcing and hiring your first controller.

To find out more information on these topics or any other aspects of growing your business through using finance and accounting, schedule a consultation!

 

Like this series?  Check out each of them in our series,  From startup to $250 Million:  How to use finance and accounting to grow your business.

From startup to $1 Million:  How to use finance and accounting to grow your business.

From $1 Million to $20 Million:  How to use finance and accounting to grow your business (Part 1) 

From $1 Million to $20 Million:  How to use finance and accounting to grow your business (Part 2) 

From $20 Million to $50 Million:  How to use finance and accounting to grow your business (Part 1)

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