Whether you’re a startup or a large company, there’s always a lot to consider when it comes to financial management. That becomes even more true when it's time to scale up and grow.
That’s why we decided to tackle the most important question facing any startup about to take off: What’s the best way to organise your finance department?
This was the topic of our CFO Meetup on June 6th 2018. The event was hosted by Sebastien Ledent, a partner at Mazars audit and consulting firm, with invaluable first-hand experience for delving into this topic.
In this post, we'll share the highlights of that event, along with Sébastien's top tips for boosting growth at startups and SMEs.
About the speaker:
- Sébastien began his career at 23 as AFD of the association that launched the Solidays festival. This started him on the path of accounting and opened the doors to the Mazars agency where he subsequently rose to the position of partner. For the past fifteen years, he’s been helping big companies put their finance departments at the service of their evolution and businesses of all sizes frequently consult him for his expertise.
Scalability - Three approaches, three priorities
Every startup plans for the big scale up - the period where you move from a tiny operation, to (hopefully) a player in the larger market. And even though it's an exciting time, you're virtually guaranteed to run into problems from day one.
So what do you do?
“What you need to ask yourself is whether most of the issues you’re facing are rooted in your processes or the tools you’re using,” Sébastien explained. For him, a company’s scalability comes down to these two factors, and the resources available.
You need to start by identifying the most important processes in terms of volume and replicability, then determine the best balance between cost, quality and timeline. “If investing in restructuring can improve one of these factors, then it’s worth doing. Otherwise, you can focus on the tools you’re using.”
“It can be hard to adopt new processes when you’ve reached a certain rate of growth. By that point, you’ve had time to let bad habits become ingrained, and information is scattered."
"So what’s the best time to make changes?” Manon, finance manager at Birchbox, asked. For Sébastien, it’s pretty straightforward: when the lack of processes becomes a problem for a member of the company, then it’s time. “It depends on the company and in particular the tools being used for day-to-day tasks. If you’ve had enough of wasting time on extraneous tasks and you want to get back to essential tasks - then I’d say it’s go time!”
For Édouard Kuhn, a former auditor and currently AFD at AB Tasty, the first thing you need to focus on is the most crucial, and that’s wherever the most risk lies. “The idea is to take it one step at a time and to move forward by trial and error, adapting your processes gradually as you go. That’s my approach. We’re growing so fast that the processes we use today won’t be the same as those we’ll need three months from now.”
Édouard underlined the importance of remaining flexible and responsive, adapting to your changing needs, and prioritising accordingly.
“It’s a good approach,” Sébastien agreed. “But if you really want to step things up, then sooner or later you’ll need to embrace change. The difficulty is the fiscal aspect - having a risk-based approach can mean that you end up missing some discrepancy or other that’s not necessarily of great consequence today, but that could have a much bigger effect in the long term.”
When formalising processes, “without writing a whole book on it”, you need to put a few operating procedures in place to set up the key steps for a successful synergy between processes and computerised tools. Define the workload, calculate how much time each process takes, and identify benchmarks, KPIs and management policies.
The goal is to start structuring your finance team.
2. Technological tools
The right finance tools can help you to reach your goals and make your business secure. You could base your choice of tools on financial criteria, in which case you might opt for Excel over dedicated accounting software or ERP; or on what your team needs or wants.
Be aware that using high-tech tools can make all the difference when it comes to holding onto young financial professionals or recruiting talented individuals to your team in the future.
To do this, it helps to take advantage of new financial management technologies. Here are the top four to keep a close eye on:
- The cloud, which lets you store data and streamline data sharing
- Big Data and Business Intelligence, which will give you more actionable information and help with decision-making, in particular by integrating predictive analysis into the role of the CFO
- Automation solutions, which will be employed in manual accounting tasks such as operational transactions to lessen the burden of low-value tasks
- Artificial intelligence, which will pick up on trends and facilitate the creation of new predictive models that could inform decision-making processes
This is where you need to ask yourself whether outsourcing tasks is right for your company. To inform your decision, you’ll need to take stock of what it is that you’re trying to achieve: international growth, financial growth, industrialisation of processes, quality improvement, outsourcing high-volume repetitive tasks.
Once you have your goals clearly in mind, you need to think about any potential obstacles to do with the outsourcing location, business culture, contractual inflexibility and volume of transactions.
In terms of dealing with small or large service providers, it’s important not to underestimate the scope that a startup ready to take off has when it comes to negotiating, which is a lot broader than you might imagine. The best strategy is still to create an ecosystem comprised of several accounting outfits.
The relationship you form with these new partners will allow them to gauge your business’s potential and decide to assist you in achieving your objectives at lower rates. In turn, this approach will pay off for them as your startup grows.
The best approach to scalability
Start by setting up your team and equipping its members with the necessary knowledge. This involves imparting the culture and philosophy of your business, two key steps for which you’ll need to take your team’s feedback on board, get them involved, and create an environment conducive to design thinking.
Everyone can then define and share their needs to carry out comprehensive feasibility studies.
“You can try jumping into a project without setting up a business case or defining ROI, but it’s always good to have an overall view of the finance department’s processes to be able to prioritise tasks,” Sébastien explained. “This kind of process might require investing some resources, but you’ll reap the rewards elsewhere”.
It’s only after this that you go ahead or experiment before doing so. “Don’t hesitate to try things out. It can be a great starting point for a business and provide leverage for negotiating with service providers, with the POC (proof of concept) potentially serving as a promise of future contracts.
Sébastien’s final word was: “Implementation within the finance department is exactly the same for a startup as for a big company.” It’s just a case of adjusting your habits, which calls for effective change management.
For him, the first step for a startup is to make sure everyone understands that structuring the financial aspect of the business is just as important as going out and securing cash. You need be prepared to manage change, and the finance department plays a key role in setting up the appropriate processes, even though mistakes can come from elsewhere along the line.
Using Spendesk, for example, is a great means of raising awareness while also making life easier, as much for the finance department as for other employees.
“When you trace back over the various stages, you realise it’s the finance department that suffers the consequences of any errors made along the way, and sometimes it can go all the way back to the estimate handed out by a member of the sales team,” Jonathan, CFO of Stuart, revealed.
“That’s why you’re often better off focusing on the initial rather than the final phases.”
When it comes to big clients, it may even help to go and see them in person to go over how documents are to be created.
In conclusion, the finance department frequently has to deal with complicated situations and rarely has the time to sort out every problem on the spot. Rapid growth is great, but it doesn’t help when you’re trying to go about improving your processes.
To better address scalability, you first need to correct each mistake one at a time to build your process. Only then, though as swiftly as possible, should you start thinking about a more comprehensive approach including the tools and resources available to you.
Final point: the finance department shouldn’t hesitate to share their thoughts by explaining the situation in person to the appropriate individuals, be that management or a client.