The rapid development of disruptive technologies in recent years has caused an explosion in start-up activity. Thanks to the favorable investment climate that we have witnessed in recent years, there is a trend of rapid development of companies in all sectors, which should continue to grow to meet consumer needs and investor expectations.
During these phases of high growth, companies tend to prioritize revenue-generating activities, such as product development, marketing, and sales. This biased orientation results in limited effort in support functions. However, to successfully grow a business, the support functions – especially the finance department – must evolve alongside the rest of the business.
In practice, we find that the importance of finance is repeatedly overlooked, leading to significant issues with scaling the business. The finance department should be seen as a key catalyst for the growth of a business, as it is responsible for managing cash, generating information to support decision-making, sourcing and paying suppliers , cash inflow tracking, planning, business trend analysis, etc. the center of every business and can bring real added value, if implemented effectively.
We’re introducing a series of blogs that will dive deep into the finance department of a fast-growing scale-up. Examine challenges, ingredients for success, and how to define and work towards a more effective target state. In this first blog of the series, we will present some of the challenges finance departments face and what a good finance ecosystem looks like.
The crucial role of finance
The finance department of each organization basically bills and collects money, provides financial planning/forecasting, and allocates funds to the right areas of the business. In short, it helps determine what to spend, when to spend, and where to spend it. In addition, this department plays a vital role in providing management with access to the latest data on business performance so that they can make informed business decisions based on accurate information. Due to the breadth of finance responsibilities, it is a critical function for all organizations.
Main challenges faced by finance departments
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Attrition of key financial staff due to reliance on SMEs for cleaning and financial data entry tasks, as opposed to meaningful value-added work
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High costs due to inefficient use of resources and systems (e.g. due to manual processes and controls, retroactive data cleansing, inefficient use of systems)
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Difficulty gathering accurate data in a timely manner, which can result in outdated or inaccurate data being leveraged for senior management decision making
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Inaccurate financial and regulatory reporting, which may result in material changes and financial implications (e.g. fines)
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Difficulty meeting deadlines for taxes, filing of accounts, etc.
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Missing or inaccurate data for investors
Organizations where these challenges within the finance department are not actively addressed will struggle with accuracy, efficiency and cost control. These problems will grow exponentially as the business grows. Especially when a company is preparing or once it has completed a funding round or an exit strategy, these challenges will weigh heavily on the finance department and could hinder or delay the success of the strategy.
The ingredients of a successful financial service
In an ideal world, the organization would solve these challenges by addressing the source of the challenges, with an operating model that includes:
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A mix of internal and external professionals, which helps to balance costs, local shortages and resource qualifications.
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A centralized accounting or ERP system, which is linked to corporate data sources and a variety of tools that support straight through processing and limit manual data processing.
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A golden data source, stored in the cloud, with sufficient governance in place that feeds the modules for financial accounting, financial reporting, financial planning, management reporting, tax reporting, etc.
A purpose-built finance ecosystem that implements the above aspects and addresses the challenges at their source will enable the finance department to truly add value to the business. At the same time, it will help reduce cost increases as the organization grows, due to the level of built-in efficiency and automation. The earlier the foundations of this ecosystem are built within a company, the better.
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Throughout this blog series, we’ll highlight the importance of finance in a scale-up and provide tips and tools to help improve the performance and scalability of your finance department.
The main topics we will cover are:
- The main challenges facing the financial departments of large-scale enterprises
- Investor requirements and expectations for scale-ups (including: Venture Capitalists)
- The key structure/framework CFOs of large-scale enterprises need in place
- CEO of Changing Business Expectations of Financial Service
- Our top tips for positioning your finance department for future growth and success
Keep an eye out for future blogs in this series, where we’ll continue to dive deeper into each of these topics and provide advice on how to tackle key challenges and set up your finance department for success.
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