Scaling up a business comes with many challenges, and keeping your finances under control should be a top priority. As your company grows, you’ll need to adapt your financial management strategies to handle the increased complexity. Follow these tips to keep your finances in order during a growth phase.
Set Up Proper Accounting Systems
As your business expands, you need accounting systems that can handle the extra volume. QuickBooks or Xero are popular small business accounting platforms that can scale with you. Work with an accountant to set up these systems correctly from the start. That includes establishing proper accounts, categorization methods, and financial controls.
You should also implement strong invoicing and collections processes to ensure you get paid on time. Consider automating invoicing through your accounting platform. The right systems will save you time while giving you clarity into cash flow.
Hire a Financial Analyst
While only a few employees may have handled the finances originally, growth requires dividing responsibilities. Hire a financial analyst or accountant to oversee cash flow analysis, budgeting, reporting, and projections. If hiring in-house is not financially feasible, an agency specializing in remote employees can help you find the right financial analyst at a much lower cost.
Develop More Robust Budgets
Early-stage businesses can sometimes get by with simple budgets. But as you scale, your budget needs refinement. Build comprehensive budgets that represent each business area and initiative. Tie budgets to specific goals and timelines, such as monthly, quarterly, or annual projections.
Compare budgets to actuals regularly to identify problem areas. Forecasting will also become more vital to predict future cash needs. Software tools like Float or Vena can automate parts of the budgeting process.
Monitor Profitability Closely
Rapid growth often leads to declining profit margins. Your most profitable product lines or services may become less lucrative. Institutes processes to monitor profitability across all areas, by product, service, territory, distribution channel, and customer segment.
Look for unprofitable areas you may need to eliminate or alter. Also, determine where to focus for the most profitable growth. Keep an eye on human resource costs as well to avoid unaffordable overhead.
Manage Cash Flow Meticulously
With scaled-up expenses, cash flow management becomes imperative. The more effectively you control cash flow, the less outside financing you will need.
Generate cash flow forecasts on a weekly or even daily basis. Look for imbalances between income and expenses that require funding. Prioritize collecting receivables faster. Consider negotiating extended payment terms with vendors if possible. Optimizing cash flow will provide stability during growth.
Consider Financing Options
Even with diligent cash flow management, rapidly growing companies often need outside financing. Explore funding options like small business loans or lines of credit to access capital. Your improved financial reporting capability will make financing easier to obtain.
Equity financing may also be an option to fuel growth without debt burden. Working with an investor can provide capital while opening doors and providing expertise. Think through the pros and cons of debt versus equity funding for your situation.
Implement Strict Controls
Lastly, growth requires stronger financial controls to minimize risk. Ensure proper approvals are needed for all expenditures over a certain threshold. Increase oversight of procurement and contracting. Physical access to assets should be limited.
Segregate duties across financial functions, with different people handling billing, collections, disbursements, bank reconciliations, and payroll. The right controls will reduce the chance of errors and fraud.
With careful planning, you can scale your business rapidly while keeping your finances orderly. Following these tips will help you manage growth successfully and set the stage for the next level. Adjusting your financial strategies during a growth phase may be challenging but is critically important for future stability.
