The CFO’s Toolkit for Scaling: Managing Hypergrowth

  • June 21, 2024
  • Bob Clark
  • Approx. Read Time: 3 Minutes
  • Updated on October 1, 2024

Successful companies often reach a threshold where they transition from a start-up to an established middle-market company. This can be a gradual evolution or a rapid shift due to external factors like increased demand from COVID-related market changes. During this transition, the company must adapt and mature, as what worked before may not necessarily work in the next stage of growth. What may have been sufficient processes in the past might now need to be optimized for efficiency. Several key steps can assist with this process, revolving around people, processes, and systems.

 

1. Building Your Team

Attracting and retaining top talent is crucial. Create a hiring plan and establish a structure to access skilled individuals. Build an HR team that can source great talent or partner with a recruiter to build your talent pipeline. Your company will need recruiters who understand your needs, can translate them to the marketplace, and work with you to find top talent. Next, implement an incentive structure to retain incoming talent – base salary, bonuses, benefits, and equity should all be considered and allocated appropriately.

This applies not only to employees but vendors as well. Are your external tax and audit teams equipped for the next stage, or are they better suited to a smaller, less complex company? What about your bank, credit card companies, or insurance broker? Are they aligned with your growth and ready to partner with your company to support your continued expansion?

 

2. Streamlining Processes

How can you simplify processes that were pieced together during the company’s initial growth phase? Break them down and identify ways to optimize them, and ideally, automate them. Think through daily, weekly, and monthly tasks and tackle them systematically. Payroll, for example, is essential, but how can it be streamlined? Are there unnecessary steps or complications that don’t impact the final outcome?

Similarly, establish a calendar for financial close and determine how to accelerate the process, enabling faster information delivery and action by the leadership team. Importantly, every company should implement a thorough cash management and forecasting plan. A cash receipts and disbursements forecast is the simplest way to speed up incoming cash and slow down outgoing cash. This is crucial whether you have abundant funds, aiming to align them for investments or owner distributions, or limited funds, needing to navigate a slow period.

Prioritize processes that worked in the past but may no longer be effective due to the current and forecasted volume or complexity of the next stages of business.

 

3. Implementing the Right Systems

Having the right systems for your company’s specific lifecycle stage is vital. Many companies start with QuickBooks, then transition to NetSuite or Microsoft Dynamics, and eventually to Oracle or SAP. It’s essential to set up the system with minimal customization to meet the company’s needs. Any ancillary systems should be configured to automate inputs/outputs with your ERP. Ensure your GL accounts are structured to manage information in the way you’ll use it.

Understand your business’s information needs and how your systems will deliver that information. Consider implementing analytics to connect disparate data sources and provide on-demand reporting. Automating steps like AP to catalog, approve, and pay invoices is another valuable step to reduce time spent on this activity.

Lastly, prioritize cybersecurity when building and updating systems to safeguard your information.

 

4. Aligning with Your Future Strategy

By addressing these areas, you can pave the way for continued growth and success. The next consideration is aligning with the company’s future strategy. Will it be sold to private equity, a strategic buyer, or go public? T

he best approach is to build infrastructure that supports all possibilities, including unexpected ones. Consider questions like: Are you audited? Do you need a valuation or a quality of earnings report?

Whether you’re focused on current activities or those five or ten years down the line (or even sooner, if growth is rapid), always consider the long-term implications of your decisions.

 

Conclusion

The journey from start-up to established middle-market company is marked by significant growth and change. By strategically addressing the key areas of people, processes, and systems, CFOs can successfully navigate this transition and ensure their company’s continued growth and success.

Remember, the decisions made today will not only impact the present but also shape the company’s future trajectory. Embrace the challenges and opportunities that come with scaling, and proactively build an infrastructure that supports your company’s long-term vision. By staying adaptable, focused, and strategic, CFOs can lead their companies through hypergrowth and beyond, ensuring sustainable success in the ever-evolving business landscape.

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