Creating a finance function that are growth enablers not bottlenecks: the theme of the latest webinar from our Tech & High Growth experts.
Tom Watts, Associate Partner, and Nick Moran, Senior Strategic Finance Manager led the session, drawing on their experience of delivering finance, accounting and commercial advisory support to some of the UK’s most successful startups and scaleups.
It was gem-packed hour so we’ve cherry picked the highlights. If you have any questions for the team, we’d love to chat.
FIRSTLY, WHAT IS STRATEGIC FINANCE?
Strategic Finance is “the strategy and financial support required to scale your business by putting the company’s growth and long-term vision at the heart of the finance function.”
Examples include:
- The ability to define and set KPIs to track and course-correct the organisation and build out data and metric-driven financial models and scenario plans
- A strong understanding of your company’s growth ‘playbook’, i.e., markets you’re going into, products you’re releasing, geographies, future acquisitions etc.
- Strategies around raising capital and building towards future M&A activity, with a strong network of investors and liquidity providers
- Data and business intelligence knowledge and experience
- A strong understanding of accounting, compliance and everything that involves
- Experience in evolving systems & processes and improving your organisation, internally and externally.
It covers a huge scope of business-defining areas. And let’s be real, when you’re juggling day-to-day management, ad-hoc projects, audits, due diligence, fundraising and more, it can be hard to devote time to it. But Tom and Nick shared their tried & tested, actionable tips.
THE 5 PILLARS OF STRATEGIC FINANCE
#1 KEY FINANCIAL REVIEWS & DATA PREPARATION
“Having a strong financial review process and month-end close process is the core foundation for all of the work that comes off the back of that,” the duo stated.
Clean, accessible, trustworthy data is imperative. If you don’t have the processes, support, and team to produce that, it’s on you to explore other avenues and make improvements.
This data is the backbone of Strategic Finance, underpinning the fundraising process, setting out new go-to-market strategies, lining up the business for an exit and building vital trust.
Flash reporting and streamlined month-end processes to update your model and forecast can be quick wins that enhance clarity. Maintaining a reliable dashboard of key metrics also ensures strategic and operational decisions are based on real-time information.
“One area where CFOs have issues is when still using Xero, NetSuite, or another ERP system, and other metrics, like customer churn, average contract value or sales data are in a spreadsheet” commented Nick. “We often see a lack of checks of that data back into the financials each month to make sure it all stacks up.”
#2 PREPPING FOR INVESTMENT IN A VOLATILE MARKET
With Brexit, COVID, international wars, and inflation issues all occurring over the last few years, the economy has been through the wringer.
These seismic changes affect the investment market and VC climate too. We’re in a very different position today because of them. And you should take steps to prepare your business for future uncertainties.
If you don’t raise the next round, what are you going to do? What funding options are available? What are you going to do as an organisation to continue pushing forward?
Giving yourself the tools to have those options, with a financial model that allows you to do strategic modelling and planning, should be a top priority.
When raising funds, there also needs to be an alignment between your ambitions and the VCs’. Tom said: “You need to combine business aspirations with your fundraising efforts to excite and match the ambitions of the fund you want to work with. The funds are looking to how you demonstrate that when building out your forecasts.”
Think about the numbers you need to hit to make the VC model work for the VCs. set out to show your plans can achieve that, backed up by thorough, reliable financial modelling.
#3 BUILDING FINANCIAL MODELS TO WIN OVER INVESTORS
Best-in-class financial modelling withstands investor scrutiny, showcasing revenue growth, customer growth, margin improvement and potentially where the break-even points are.
“Thinking about your 36-month projections and tracking them along with your actuals is critical” Tom said. “Partnering with the C suite and leadership team is key too: it shows a joined-up thought process around the story you’re telling, the fundraising deck, and the model from a data perspective. They all link to each other which becomes vital as you evolve into a more established, scaleup business and go out to market.”
For early stage finance leaders and founders in particular, it’s important to build a model that’s realistic, with forecasting that shows you’ve done the research and aren’t overly optimistic.
“Keep things simple” the team continued. “No one wants to drill through 20 different tabs on a spreadsheet to understand the model or complex formulas. Focus on what’s unique to your business – likely the revenue and the cost of sales- and make sure investors understand what drives revenue and profitability.”
Modelling work shouldn’t be a one-off event for a fundraiser or key decision either. Keeping everything updated in real-time is the best approach, utilising your data points and bringing the actuals into the forecast each month and rolling that forward.
#4 AUDIT & DD MADE EASY
“An audit doesn’t necessarily sound like Strategic Finance,” Nick said, “But the key point to note is audit and due diligence events can be impactful when there’s small finance team and the correct prep isn’t done. Ensuring these events go smoothly can help avoid falling into the trap of the audit or due diligence getting in the way of your key projects.”
“We see clients making mistakes in understanding when that first audit is likely to take place” Tom continued. “There are different thresholds for individual entities and group entities, and we often see businesses not including US operations, for example, when they’re calculating whether they fall into the thresholds.”
Your first audit will also include an audit of opening balances. So, if you’re a business that owns a lot of stock, to void a qualified audit opinion in the first year, you need that opening stock balance to have been audited, which often means auditors attending a stock take.
On the due diligence side, having a repository of data and an easily accessible, up-to-date model based on real-time historical performance means you can react quickly to diligence requests. This includes clean, updated management accounts reconciled to the year-end, a data set looking at the last 3 years and a 3 year forecast for the future, ready to go.
Having a detailed revenue analysis at your fingertips is also useful. How have your recurring revenue and sales changed month on month? What’s the growth? Are the assumptions going to change?
Client data sets are another huge area of reporting in due diligence, and having customer profiles, geographies, top customers, sales mix, growth, expansion, contraction and churn data readily available is key.
#5 SYSTEMS & PROCESSES THAT SCALE WITH YOU
From implementing new software solutions, to evolving internal & external systems and processes, and ensuring you’re in the best shape now and in the future is critical in Strategic Finance.
“We see a lot of bigger scale ups still utilising Xero lot later in their journey than we would a few years ago” the team explained. “Because of the variety of tools in CEO ecosystem you can build a tech stack with Xero that allows you to utilise it for longer than founders might have done in the past.”
“Most businesses get to a point where they’re ready to move to NetSuite or similar,” they continued, “But don’t go guns blazing and get the most comprehensive NetSuite implementation: you’ll likely struggle with resourcing issues, so do it in stages.”
In phase one, the platform will replace your current systems. In phase two, you can introduce a second wave of updates.
NEED A HELPING HAND?
Whatever your stage, our Strategic Finance team specialises in implementing commercial solutions that quarterback your growth strategy.
To find out more about how they can support you, get in touch.
