At start-up and in the earliest stages of operation, most companies understandably approach the accounting and finance side of their business from a basic bookkeeping perspective. As a business grows, however, so too does the need for more advanced accounting practices and financial insight. In most cases, adding responsibilities requiring a higher level of experience and expertise onto the plate of a bookkeeper or entry-level accountant does not set these employees or the business up for success.
How do business owners and leaders without specific accounting and finance expertise evolve or match their accounting and finance resources and practices to support the business as it grows? Below, we detail an anonymized but true account of the common frustrations that one business faced and how they updated their mismatched accounting and finance practices to support growth.
Accounting and Finance Practices that Lead to Plateaus
Construction Consultant Pros (CCP) is a professional services firm that has been in business for 25 years. When the leadership of CCP was passed on to the founder’s daughter, she sought answers to why the business couldn’t break through to the next level of growth. The company had plateaued after multiple years of generating close to $15MM in annual revenue.
One of the answers to this question was that the organization did not have a true picture of its profitability. In one instance, profit shown in December statements did not match the cash collected in January. This failure to accurately anticipate cash flow and profitability did not allow partners to effectively manage their subsequent tax payment obligations and ultimately reduced what they had available to invest back into the business. In other instances, statements underrepresented the organization’s profitability, again painting an inaccurate picture of the company’s overall financial position.
Objective Assessment of Accounting and Finance Practices
CCP’s new leadership decided to bring in outside expertise. They engaged vcfo to provide an accounting and finance expert to determine whether elements of their bookkeeping and accounting practices were contributing to the inaccuracies and if so, how they could get the additional strategic insights they needed to grow the business. A first foundational step was to complete a Workplan Analysis process to gain a detailed understanding of how the CCP team worked independently and collaboratively to process information, prepare their financial statements, and provide strategic information to the leadership team. Findings included:
- Highly siloed activities (e.g. different geographic locations operating largely as independent companies)
- Significant process inefficiencies (e.g. manual tasks that could be easily automated)
- Expertise and knowledge gaps in those performing CCP’s bookkeeping and accounting
- An absence of strategic financial experience
- Small company accounting practices that had not scaled with and no longer supported the needs of the business
A key finding was an issue illustrated at the beginning of this post – CCP’s original bookkeepers had been tasked with progressively higher levels of accounting responsibilities and more demanding deliverables that they were not experienced in or properly equipped to handle. This can unintentionally and unfairly make affected staff members feel as though their individual performance is a fundamental fault and being scrutinized. Leadership must be sensitive to this and emphasize that the focus in evaluating current procedures and recommending changes is on process improvements and not on finding problems with their people.
Implementing Needed Changes to Accounting and Finance Practices
After gaining a better view of how the organization’s accounting and finance practices were affecting information outputs and strategic decisions, the vcfo team set out to implement practice updates and process improvements. These steps included:
- Adopting updated and standardized steps for true accrual accounting
- Scrubbing the books to establish confidence, clarify gap reporting, and set up reconciliations
- Implementing proper transactional systems and a process manual that the team could follow
- Putting a virtual CFO in place to provide ongoing strategic expertise, leadership and guidance
- Establishing new management reporting (e.g. annual budget, meeting disciplines, scorecards)
Collectively, these changes helped CCP get a clearer picture of how they were making money, how they could grow strategically, and how to better support the team members tasked with preparing their financial statements and delivering operational insights.
Identifying the Paths for Business Growth
The key takeaway from CCP’s journey is that the bookkeeping, accounting, and finance structures and processes that serve a company in its infancy will not be sufficient to fully support the business as it reaches and works towards different milestones of growth. Similarly, leaders should not expect the staff that delivered this work in the beginning to be able to continually take on more responsibilities and deliver the needed levels of strategic insight.
As leaders get busy with business development and operational concerns, it can be easy to lose sight of how deficiencies in their accounting and finance practices are affecting their ability to move the business forward. Fortunately, applying tools like Workplan Analysis and augmenting existing teams with the right accounting and finance expertise and support can right the ship and put businesses on a course for sustainable optimized growth.
Are your accounting and finance practices and processes holding your business back? Request a free consultation from a vcfo expert who can help.
Related reading: “Do I Need a CFO?“