It's a tale as old as time in the business world: a rapidly growing company expands their business operations and keeps their finance and accounting department in a stagnant position. Many CEOs do not place enough emphasis on the link between their core business and the accounting function within their companies. Accounting impacts every department and can help or hinder the ability of a company to expand.
The long time struggle between business operations and accounting/finance teams usually comes to a head as a company grows. The executive team wants to fund expansion and get financials and analytics on demand, but the data isn't available. Without the proper treasury and accounting functions, cash movement and reconciliation could stall, disabling a company from making imperative real time purchases. Additionally, neglecting the accounting and reporting teams will result in inaccurate financial information and delays in the preparation of financial statements which can prevent a company from launching an IPO or acquiring a strategic investor.
In fast paced industries, business decisions need to be made based on real-time financial data. If you don’t know exactly how much money is available, how will you be able to make decisions on investment opportunities? This does not just include cash in the bank, but lines of credit, outstanding liabilities, and incoming revenue streams. Cash is king, and is also complicated. Companies need experienced professionals and technology to track funds or they could over-extend themselves in purchases or miss out on investment growth opportunities.
When a company wants to go public, there are an extensive amount of accounting regulations that must be implemented before any accounting firm will sign the necessary documents to file a Form S-1 with the SEC. Companies spend millions of dollars on consultants and auditing fees in order to get their close processes, internal controls, and all financial data in line with regulations for a public company. The C-Suites of private companies often misjudge how easy it will be for the accounting department to get up to code for public filings. Cutting the close process down by even five days could mean doubling the accounting team and upgrading accounting software. The availability of financial data is often hindered by unsophisticated accounting systems, which can halt plans to go public.
Equally important for growing businesses are strategic investors. While an IPO may be the future goal of a firm, more often than not, strategic investors provide funding along the way prior to listing on a stock exchange. Although investors do not require the regulated accounting guidelines as the SEC, they certainly care about the integrity of the financial data they receive relating to their investment. Many investors want monthly financials 30-45 days from the last day of the month. For a private company, this can be daunting if their accounting teams and technology are not sophisticated. Misrepresentations of financial information can not only cause investors to withdraw their investment, but can also result in legal issues, increasing costs to the firm and jeopardizing the likelihood of obtaining future investors.
To avoid these roadblocks, executives need to consider the expansion of the finance and accounting departments in conjunction with the expansion of the business. While headcount is a big part of it, the level of expertise of new hires and the technology implemented is more crucial. Hiring CPAs as opposed to bookkeepers saves companies money on the back end when they expand into more complex financial transactions. It is also imperative to upgrade accounting software as a business grows. Software without the ability to consolidate multiple entities or slice financial data in different ways will not take you to the next level. Financial transactions are only getting faster and more complex. Companies need to upgrade their support system or be left in the dust.