The rapid growth that comes with fundraising and outside investment is exciting for any business. But along with the thrill of expansion come expectations and pressures that are felt across the whole organisation – and particularly by the finance team.
To understand why, you only have to look at the remarkable boom in Venture Capital investment over the past decade across all sectors - particularly technology. More companies have been raising more money, and are doing so earlier in their journeys, according to research by Crunchbase.
The findings suggest that there have been massive increases in seed-stage funding, with investors keen to get a foot in the door early with promising young startups.
Even Covid didn’t halt this trend – rather the opposite, in fact. Though later stage funding has been hit by the recent downturn in tech valuations, younger companies seeking investment at seed and Series A stages are still seeing increases in valuations.
New investors and larger investments naturally bring expectations of fast growth, and many businesses put money into hiring and new technology to help their teams keep up. Commercial teams get cash to maximise revenue generation while operational teams get money to ensure customer satisfaction despite the increase in workload.
But what about Finance?
In this rush to invest in capacity, they are often overlooked, because they’ve always got by reasonably well with the entry-level finance products - like Xero or QuickBooks – that the business started out with.
Such systems suited the business well in its early days of low volumes and light reporting requirements. Unfortunately, it often becomes clear that they’re not sophisticated enough to cope with the increase in volumes and required outputs that outside investment brings.
Meanwhile, the role of finance teams gets correspondingly more challenging as the business matures and its customer bases grow.
Not only does their day-to-day workload increase as more processes are put in place, but other departments in the business inevitably place more demands on them. Sales and account management teams, for example, start to require insight into billing information, while operational teams need to be able to log T&E to projects or see credit control statuses.
There’s a paradox in all this: financial information increasingly needs to be shared across teams, yet such collaboration is difficult to achieve because of lack of investment in financial systems.
In many businesses, money is spent on tech in other departments – on CRMs or project management tools, for example. But Finance is left to struggle on with the same entry-level systems and myriad of spreadsheets. They often spend hours every week answering internal queries when they should be doing more important tasks.
This growth-stunting lack of data visibility could easily be solved through the data integrations that are a feature of more modern finance systems.
Without such features, Finance teams have to deal with an ever-growing mountain of manual work, and this presents some significant challenges and risks.
Let's take a look at the risks:
Risk 1: More time
Manual tasks have a huge impact on a finance team’s efficiency, especially when they involve complex procedures like revenue recognition or multi-currency consolidation. This burden only increases over time, as the company continues to grow and volumes of work increase.
Companies tell us that things get especially challenging once certain thresholds have been passed: actively trading across two or more legal entities or across two or more countries, or when customer numbers increase above a certain level. As such milestones are passed, the volume of manual work can spiral rapidly. In turn, human errors inevitably increase, and these take additional work to resolve.
All of this means that there is less time for the finance team to focus on the critical FP&A tasks that are often expected for investor reporting. They often have to fill this gap by investing in additional resources in order to keep up with demand and to continue to produce accurate outputs.
Risk 2: Less accuracy
Inaccurate data has a negative impact on any business, but it’s a particular issue for funded businesses. They have to satisfy the demands of investors for accurate, up-to-date reports and board packs, while coping with ambitious growth targets and rapidly changing numbers.
If the relevant data is contained in goliath spreadsheets with multiple tabs full of ‘V Lookups’, or if the data has to be pulled from multiple entities in multiple currencies and with various reporting structures, it becomes a near-impossible task.
If they are to keep up with expectations, the finance teams (and the decision makers through the business) absolutely need the ability to access accurate, real-time data in a timely manner.
Risk 3: Reduced valuations
Because valuations are based not only on the company’s historic performance but also on forecasts, data accuracy is truly critical.
Ask any finance professional who’s been through fund-raising about the late nights spent pulling reports and creating forecasts to extract the relevant numbers! Listening to their hair-raising war stories really brings home the scale of the challenge of accessing the data you need from multiple spreadsheets full of data exports and formulas.
Investors are well aware of the risk to their potential return on investment of errors in any one of these sources, so doubt over the accuracy of the numbers can fundamentally impact the valuation that can be achieved.
Investing at an early stage to upgrade the technology used by finance teams can help avoid this issue, give investors more confidence and so maximise the valuation.
What features do growing companies need from a finance system?
Fast-growth, funded businesses looking to upgrade from entry-level finance systems need several key features from their new systems:
- Accurate, real-time reporting that is easily interrogated and is flexible enough to handle changing reporting requirements as new investors come on board;
- Advanced process automations across the board to reduce workload and the chance of human error;
- Powerful spend management functionality to efficiently control cash burn;
- An open platform that is easily integrated to other key business systems.
Large ERP systems that offer such features are far more expensive than the entry-level systems they replace, and they also take considerable time (months, if not years in some cases) to implement.
iplicit not only offers these features as standard but also has an affordable price tag and can be implemented in weeks. As such, it removes the barriers of both cost and disruption that can deter some businesses from upgrading.
These benefits allow high-growth companies to invest in the finance tech they need far earlier in their journey. By removing the risks and challenges that slow down their day-to-day activities, they can instead focus on strategic activities that fuel growth without having to invest in additional headcount.
If you’d like to find out more about iplicit please get in touch to arrange a demo.
ON-DEMAND WEBINAR: How to drive business growth from within the finance function
As companies grow, the finance function often gets left behind. What they really need is a flexible, and powerful finance system that can keep pace.
Discover why companies that outgrow other finance systems move to iplicit, an award-winning alternative to the traditional ERPs on the market, with enterprise-level functionality and advanced analysis and reporting capabilities.
In this on-demand webinar, we'll cover the key tools that will enable you to make fast and more informed decisions to facilitate growth.
Our webinar will cover:
- The challenges high-growth companies face
- How better Business Intelligence will help you grow
- Tools to free up your finance team by one week a month such as:
- Advanced workflows and approvals
- Automated billing and revenue recognition
- Intercompany management
- Multicurrency and multi-entity consolidation
- Flexible multi-dimensional reporting
- API & systems integration - work smarter, not harder