Scaling up a business rapidly is a massive rush in that it’s both exhilarating and also a scramble.
Not growing fast enough can be the death knell for small startups, and one of the primary reasons why 90% of startups fail before they ever get a chance to clear the runway. On the other hand, while it’s admirable to aim for the stars, you need to lay a solid groundwork and ensure you have checks and balances in place, or you’ll soon find yourself lost in space.
Technical accounting and bookkeeping are the gatekeepers of your bottom line, ensuring you maintain the tenuous balance between growth and capital.
As you begin to put your foot on the gas, it’s essential to ask yourself the following questions:
Can we afford to hire the new staff or contractors we need to keep up with growth?
Is there enough liquid capital to mitigate risk and cover expenses?
Are we prepared to effectively handle our influx of new business?
Do we have the resources to cover the day to day bookkeeping and accounting tasks?
Do we need to update our financial and accounting systems?
If your business is expanding rapidly, read on for some high-level accounting guidance to ensure those procedural and accounting issues are addressed well before they could ever derail your growth plan.
1. Manage your cash flow
Growth requires spending, and rapid growth does not always result in a significant influx of capital, mainly if your cost-per-acquisition is still high.
A strong accountant will always have a view of operating costs, sales, overhead, assets, liabilities, inventory, and the cost of increasing human capital. By keeping a view on recurring expenses and projected income, you’ll be able to create rolling financial projections and set spending limits on low-priority items.
As part of your growth plan, you must also factor in the costs associated with any upgrades to your office space or software toolset.
When you’re looking to trim the fat, it will be essential to have all of these items prioritized, so when it’s time to go to the chopping block, you already have contenders lined up.
2. Switch to accrual-basis accounting
If you’re still using cash-basis accounting, it’s time to revamp the books.
Accrual accounting is a double-entry method of accounting where the number of debits must equal the number of credits. This approach ensures that the basic accounting equation of net income (assets = liabilities + equity) is always in balance. This system allows you to factor in the impact of business loans and other debts, while also factoring in impending cash flow to your business from clients or investors. The other significant difference is that you will be paying taxes on money still owed.
Switching to accrual accounting requires you to completely overhaul your existing bookkeeping and accounting solution, as well as your reporting tools and templates. All your journal entries need to be adjusted to incorporate both accruals and deferrals, and you also need IRS approval to change from cash-basis accounting to accrual, which requires you to file IRS Form 3115.
It is also worth looking into GAAP Accounting Standards to ensure you’re fully compliant with best practices. This will help ensure you are eligible for loans, and your success metrics are showcased utilizing an established format.
3. Assist with the hiring strategy
Rapid hiring is naturally a huge part of a growth plan, and while finance typically doesn’t get involved in hiring beyond salary, hiring the right people is critical. The financial and time cost of losing employees rapidly and having to find new candidates adds up quickly.
From a finance angle, you calculate the cost of turnover, make sure that the costs of onboarding new hires are managed. That new hires are adequately assessed for their passion for working in a fast-paced environment and be an integral part of your company’s expansion.
4. Manage the massive influx of clients or customers
As your business ramps up, your processes will have to keep up in tandem. If you haven’t yet invested in accounts payable and accounts receivable software, now’s the time.
Comprehensive tools such as Invoicera allow you to have a full audit trail and maintain complete visibility over-invoicing concerns. You can manage invoices for both clients and vendors, with automated reminders and status tracking to ensure prompt payment.
5. Simplify your accounting and reporting processes
As your finances ramp up, spreadsheets and manual data entry simply won’t cut it. It helps to have bookkeeping and accounting software in place to ensure your records are meticulous and error-free.
Automated accounting platforms can also supply your team with financial reports and checks and balances, such as:
360 View of Accounting Data: View real-time procurement, invoicing, and cash flow simultaneously.
Improve Controls: Systems that include audit tracking and financial oversight to reduce financial errors and ensure the accuracy of all accounting data.
Financial Planning: Data from various operational components of the business provides business cases for cash management, borrowing, restructuring, equity raises, etc.
Real-Time Compliance: ERP reporting provides an investigative interface that helps ensure tax compliance and remediate issues.
6. Bring in outside financial help
Last but not least, you should consider hiring a part-time financial consultant or accountant. A lot of executive-level CFOs work in firms as consultants or interim CFOs, and in the process, are made affordable to startups and rapid-growth small businesses. According to a WSJ survey, More than 50% of small businesses now have a CFO or Financial Controller managing their accounts.
Bryce Welker, CPA, and CEO at Crush Empire wrote a comprehensive Forbes article on the finances of startups. In it, he outlines the value proposition of bringing on a certified public accountant:
“Time is money, and accountants will save you time, money, and possibly your sanity. There are a lot of different duties and constraints to face when starting a new business. Hiring an accountant will take the stressful financial tasks off your plate. Delegating these fiscal responsibilities to a reliable specialist leaves you with more time to handle other areas in your business, leaving finances in the best of hands.”
A CPA or CFO/Controller will be able to provide a strategic angle to your finances, preparing financial statements, ensuring progress is in line with your progress, and how to course-correct when things go awry. A good accountant also acts as a legal loophole expert who can help your company skillfully save large amounts of money every year through tax management and planning.
At Greenough Group, our accounting and CFO/Controller team has more than 20 years and 800 companies worth of financial experience. We’re always happy to support the next wave of innovators, so if you want to ensure your accounting and financial reporting processes are in line to support your business growth, drop us a line – we’d love to chat with you.