Fortifying Finances: Strategies for Sustainable Business Expansion
On Episode 167 of the AmiSights Podcast, Pete Heald, CEO of Signature Analytics, and Jason Kruger, President and Founder of the company, join host Ami Kassar to share their expertise. The podcast features discussions on the motivations behind founding Signature Analytics, a firm specializing in outsourced CFO and business advisory services.
Pete and Jason emphasize the crucial role of accounting and finance in driving business value and the risks associated with relying on a single individual for accounting tasks.
“What I saw back then, and continue to see now, is the need for these types of companies in the small mid-market – they deserve better than what they’re getting,” Kruger said. “A lot of them are looking at accounting and finance as a necessary evil. And what we want to do is educate them and show them how accounting and finance can drive value to their business.”
Then, read on to learn how to navigate financial challenges, fortify finances for sustainable business expansion, and empower CEOs to understand the story behind their numbers.
Navigating Financial Challenges: Insights from Signature Analytics
At Signature Analytics, we work with companies ranging from $5 million to $100 million in revenue. In our experience, many businesses encounter significant financial challenges, particularly when seeking financing. One common issue we see is disorganized bookkeeping and accounting. This often leads to discrepancies between their tax filings and their books, creating a tangled mess that delays the financing process.
Clients frequently come to us frustrated with the lengthy process of securing financing, often blaming the banks for the delays. However, the reality is that it can take up to two months to untangle and correct their financial records before the financing process can even begin. This delay poses a significant risk, especially for businesses that need funds quickly.
We always advise our clients that having accurate and well-maintained financial records is crucial. Poor bookkeeping and accounting can be a major hurdle, particularly if you require funds urgently. This is a fundamental problem we encounter regularly.
Through our extensive experience, we’ve been called upon hundreds of times to review and rectify financial records. These “war stories” highlight the importance of robust financial management practices. Ensuring your financials are in order not only facilitates smoother financing processes but also supports sustainable business growth.
The Risks of Financial Control: Lessons from Signature Analytics
As businesses grow and become more complex, relying on a single individual for financial management can lead to significant risks. Often, the person who initially handled the finances may lack the skill set needed to manage the complexities that come with business expansion. Additionally, concentrating financial control in one person can lead to severe issues, including financial mismanagement and fraud.
The Complexity of Business Growth
One concerning scenario is when the individual with complete financial control exploits their position. We’ve seen cases where this person, handling everything from accounting to payroll, discreetly increases their salary without anyone noticing. This unchecked control can lead to significant financial losses for the company.
Real-World Example: Nonprofit Embezzlement
A notable example involves a nonprofit organization in San Diego, where one person managed all financial tasks. Over a couple of years, this individual embezzled approximately $500,000 by creating dummy vendor accounts and issuing checks to themselves. Such situations are alarmingly easy when one person has sole financial authority.
Tactics of Financial Fraud
Other tactics used in similar cases include submitting false expense reimbursements. The lack of oversight allows the individual to approve and pay themselves for these bogus expenses, further draining the company’s resources.
The Importance of Distributed Financial Responsibilities
These examples underscore the importance of distributing financial responsibilities among multiple team members and implementing robust oversight mechanisms. By doing so, businesses can mitigate the risks of fraud and ensure their finances are managed transparently and effectively.
The Evolution of Financial Needs: When to Level Up Your Accounting
As your business grows, so do your financial management needs. Starting with basic bookkeeping might suffice when you’re generating a million or a couple million in revenue. You might be managing this internally or using basic bookkeeping services available in the market.
The $3 to $5 Million Milestone
Once your revenue hits the $3 to $5 million mark, it’s time to evaluate how you’re growing your business and the level of sophistication required in your financial management. The specific needs can vary by industry, but this is a crucial stage to reassess your financial reporting and resources.
Critical Growth Triggers
$8 to $10 Million: Reaching this revenue range often signifies another growth trigger. Your business needs may evolve, requiring more advanced financial strategies and tools.
$15 to $20 Million: At this level, the complexities of your financial operations increase further. The resources and strategies that got you to this point might not be sufficient to sustain and drive further growth.
Upgrading Your Financial Resources
At each of these critical growth stages, it becomes essential to reassess and potentially upgrade your financial resources. The expertise and tools that were effective in the earlier stages of your business may no longer be adequate. This is where Signature Analytics can provide valuable support.
Introducing the Accounting Health Check
To assist businesses in navigating these transitions, Signature Analytics is launching an Accounting Health Check. This service helps businesses understand the risks associated with their current accounting practices and identifies areas for improvement based on their specific growth stage. This proactive approach ensures that your financial management evolves in tandem with your business growth, paving the way for sustainable success.
“Building a business is akin to constructing a house. While the aesthetics are important – the furniture, the paint, the design – it’s the foundational elements like the electrical system that truly make it function. Similarly, your business’s accounting system is its backbone. Ignoring it could lead to unforeseen consequences, causing your beautiful venture to crumble. It might not be as glamorous, but it’s absolutely vital.”
Empowering CEOs: Understanding the Story Behind the Numbers
Overcoming Financial Fear: Empowering CEOs and Business Owners
Many CEOs and business owners grapple with a sense of unease when it comes to understanding their company’s financials. After all, most founders aren’t trained accountants. This fear stems from a concern of not fully comprehending the intricacies of financial information.
Crafting a Clear Narrative: Partnering with Signature Analytics
At Signature Analytics, we address this fear head-on by partnering with CEOs and leadership teams to demystify financial data. We don’t just present numbers; we craft a narrative that brings those numbers to life.
From Numbers to Narratives: Making Financial Data Accessible
Through graphical representations and clear explanations, we help CEOs understand how the income statement connects to the balance sheet and what various ratios and KPIs signify.
The Critical Role of Financial Understanding in Scaling Businesses
As businesses scale, this understanding becomes even more critical. CEOs don’t need to be accountants, but they do need to grasp the fundamentals of accounting to effectively tell the story of their business.
Beyond Gut Instincts: Leveraging Financial Insights for Strategic Decision-Making
We’ve encountered instances where CEOs dismiss the importance of financial reports, relying solely on gut instincts or bank balances. However, we emphasize the importance of digging deeper.
Shaping the Future: Empowering CEOs with Financial Knowledge
Understanding the story behind the numbers can provide invaluable insights into the health and trajectory of your business. By empowering CEOs with the knowledge to interpret financial data, we enable them to make informed decisions that drive sustainable growth and success.
Beyond Fraud: The Importance of Financial Oversight
Avoiding Pitfalls: The Dangers of Lackluster Financial Oversight
Beyond the threat of fraud, inadequate financial oversight can lead to a host of other problems. For instance, without a second set of eyes and expert guidance, critical tasks like reconciling bank accounts can fall by the wayside.
The Danger of Uncashed Checks: Misleading Bank Balances
We’ve seen instances where checks are sent out but not cashed, leading to inflated bank account balances. Business owners may make decisions based on these balances, unaware that uncashed checks could quickly deplete their apparent cash reserves.
The Need for Accurate Forecasts: Understanding Your Financial Position
Moreover, without proper financial management, businesses struggle to create accurate forecasts and projections. This difficulty arises from a lack of understanding of the business model or insufficient base data.
Partnering for Financial Clarity: The Role of Expertise and Insight
At Signature Analytics, we recognize the importance of having the right talent to provide accurate financial advice and insights. Our team works closely with clients to ensure they understand their financial position at any given moment, empowering them to make informed decisions and avoid potential pitfalls.
Learn More About Signature Analytics
At Signature Analytics, we support our clients’ day-to-day accounting functions, including:
- Invoicing
- AR management
- Bill processing
- AP management
- Forecasting
- Reporting
- Monthly close
- And more…
Ready to get started with outsourcing your day to day accounting services? Talk to an expert today.
