From $50 Million to $100 Milllion: How to use finance and accounting to grow your business. (Part 1)
November 5, 2021 •ROARK
Growing from $50 million and ultimately reaching $100 million in revenues is a significant growth step. The name of the game will be efficiency – allocating and controlling your internal resources as effectively as possible to increase profitability. We’ll talk about efficiency and how to approach finance and accounting from a people and process perspective in Part 1 of this 2-part blog series. In part 2, we’ll look at systems and discuss some strategic issues that need to consider at this stage of growth.
Start thinking about a CFO (especially if an exit)
You’ve got to $50 million in revenues, and no one doubts your ability to get to $100 million. You now need to hold on to the people who have helped you scale from $20 million to $50 million that can continue to help you and bring on the right talent so that you can continue climbing from here. The first person you should consider bringing on is a Chief Financial Officer (CFO).
Large companies have CFOs. In most businesses, the CEO’s role and responsibilities shift as the business grows from $50 million to $100 million. A CFO will provide a CEO with more time to spend on strategic initiatives because the CFO can see the day-to-day finance and accounting management. The CEO can also concentrate more on more significant picture issues like mergers and acquisitions.
If you plan an exit from your company, a CFO will be vital in preparing for the exit. As they will be involved in all aspects of finance and accounting functions, there is no better person to take with you than your CFO to the company that buys yours when you’re ready to sell it.
Spend the money to get the right CFO. While hiring a CFO who has been in that role before may be expensive, it’s worth the investment as this is a critical leadership position. It’s essential that the person you choose share your value system in finance and accounting. You want them to believe that finance = growth. Completing an executive search with a company that specializes in accounting and finance can be helpful in finding the best CFO for your company.
Difference between CFO and Controller
As your company grows, you’ll want to evaluate the team and identify candidates that can help take your company into the next stage. With 50-100 million in revenue, recruiting a Chief Financial Officer (CFO) is beneficial.
Look, if you’re VC-backed or P/E owned, you should already have a CFO. If privately held, it’s time to start looking at bringing on a CFO because a lot is happening in your organization.
There is often some confusion about the difference between a CFO and a controller. I think titles are like colors, you know? Let’s use the color blue. At ROARK, we have a Zoom background that is dark blue, and the “R” logo is a light blue. Different shades of blue. People go along that spectrum within a given title, too. The key sign of an internal controller versus a CFO is that the controller will focus on figures from the past, and they have limited time for looking in the future. The controller is responsible for reporting numbers, so this often means getting information in first and summarizing it before presenting the report. We’re talking about what has happened in the past. We’re talking about the budget information we have. And we are looking at how to get that information out to other third parties too. Accounting is only looking at the past and what has happened.
Being a CFO, it’s your job to look into the future and make projections. Rather than your light shining and pointing to the back, you have one that points in front. So with the help of your CFO, you can see the future even more brightly. Now, if you don’t have the accounting foundation that’s the basis for all your numbers to do finance, then you’re going to run into a lot of trouble trying to do a good spotlight.
Your CFO will help drive your business, speaking to the banks/lenders, investors, and other stakeholders if you’re looking to exit. In this phase, it’s crucial for growth that your CFO is a ‘CFO’. But they’ll be able to handle multiple departments because you’re going to have to start delegating that and then manage various departments and work with your tax people.
The CFO plays a critical part in this stage of growth. They’re all about developing relationships and figuring out how to manage external issues.
Bring on the first finance hire to partner with CFO.
Managing Costs become more critical as the volume is increasing and fiscal responsibility is even more critical Might be the time to hire your first finance person (Sr. Financial Analyst).
At each stage in growth, you may need to hire staff for the next level of success. That means hiring people before you’re at that level of development. If you haven’t, it’s time to start learning implementing GAAP/Accrual financials. If you haven’t gone through CPA audits, you will soon likely be. If you haven’t built the infrastructure, you are most likely missing out on growing profitability.
For the controllers of these companies up until now, while it may be a challenge to provide in-depth financial analyses and presentations, they must find ways to improve efficiency with limited resources. And you’re going to want someone to work with them and empower them like a senior financial analyst.
Senior financial analysts’ responsibilities are to establish reporting rhythms across different types of reports and oversee budgeting, forecasting, and ad hoc analysis. But they’re really that key right-hand person for that CFO, as well as the accounting group. Our experience is that we see this approach has been successful for a lot of companies.
Hire the right finance and accounting staff to get you to the next level.
As you progress through growth, keep in mind that staff is a key component for long-term success. Keep reviewing your employees to determine who will be the most effective as your business continues to grow. Are they the staff you need at $50 million per year or are they at the $100 million per year staff? And that, you may say, well what does that mean? If you hire the same people to take you from $50 million to $100 million, will they be able to get you what you need?
Sometimes the answer is yes. As you approach $100m in revenue, you’re going to need a lot of help crossing that finish line. So as it relates to your staff, evaluate your team if you have a $100 million year instead of a $50 million year. Yeah, this level is different because you’re going to have your proper accounting side now.
For starters, you want to make sure that you are staffing appropriately. You have your clerical-level people filling in, but you’re going to probably want some beef up at the professional level of accountants. So, typically you’ll have an entry-level staff accountant, a more senior accountant depending on your industry-cost accounting expert. Then there are all sorts of other titles in the mix. As well as your controller, something you’ll want before growth.
Convert to GAAP and Accrual Financials
This level will require converting to GAAP and accrual financials no matter how hard you’re struggling with it now. In the future, it’s likely to come up, and if that happens, you’ll think I wish I would’ve done it then. As you grow from $50 million to $100 million, now is the time to start bringing on staff members that provide professional-level financial support and input.
Build out infrastructure for growth in finance and accounting
To take advantage of growth opportunities that will arise in this stage, you must have the infrastructure in place. It is crucial not to let profits slip through your fingers. If you just invest in getting your infrastructure in order, there will be numerous growth opportunities.
The first change that you’re going to see, you should have policies and procedures in place. But these policies and procedures start becoming so crucial. To prevent significant challenges down the line, document your company’s policies, procedures, and internal controls. Internal controls are designed to make sure that things go right where mistakes can’t happen.
Establish strong finance and accounting reporting rhythms
You’re going to really want to look in and develop reporting rhythms. So you’ll have monthly closing processes, which will require that the information gets out to people. And some of those people may be soft closes or hard closes again – a topic for another day.
But, before you’re even ready to look at all of these things, increasing efficiency should be your top priority. Increase efficiency by setting up the appropriate accounting and management reporting systems for your growing company: monthly close with completed and accurate financial records, reviewed management reports submitted promptly, etc.
You are likely conducting annual budgeting and quarterly forecasting to track your company’s performance. You may also need to answer requests for tax information from professionals, such as a CPA or attorney. You have the audits, and you can schedule your reviews. You’ll report out of the bank, or there’s that much reporting coming into your system reporting.
As you scale your company, growing from a $50 million to a $100 million enterprise, you’ll need to develop more robust rhythms and more efficient processes.
GAAP and Accrual Basis Conversion is important
We discussed this earlier — you’re going to need a GAAP and accrual basis conversion when you get up this level. Is that required? You’ll be dealing with many requirements, but many people don’t realize that not all conditions are the same. But if you have not yet reached this stage, probably, you will soon. So be wise and make the conversion now; it will help grow your business in the future.
Geographic and International Expansion
This is when the process and system merged. What I mean is that you start going out, and as you grow geographically, these are just natural obstacles to overcome. That can happen, but typically companies at this level are looking to expand overseas. The difficulty of this growth stage is that many necessary processes are not in place yet, so progress is slow.
Compliance and Reporting are complicated.
So the process is essential, and systems need to be put in place to comply with that. And if you don’t have those, compliance and reporting become even more complicated when you expand. When your business has grown to the point where these things are happening, changes in process and systems come into play.
This blog talks about changes in people and processes that help you grow from $50 million to $100 million. This stage of growth is all about efficiency. Some key milestones in this stage include appointing your first Chief Financial Officer (CFO), organizing reporting rhythms across types of reports as they are brought in-house.
If you have any questions about growing your business from $50 million to $100 million and how finance and accounting can help you do that, we’d be happy to discuss that with you.
You can contact us at ROARK here.
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.