In a typical day, CEOs of small and medium-sized businesses (SMBs) are stretched thin across a multitude of activities, including strategic planning, business development, operational oversight, client management, stakeholder and legal engagement—and, if they’re lucky, a bit of marketing. They wear many hats while trying to stay as deeply involved as possible.
If this sounds like you, be aware that focusing on what’s in front of you can limit your long-term thinking around important issues that aren’t your bread and butter, such as finance operations management. Your finance operations are the backbone of sustainable growth, but just like a human spine, they must be flexible. If not, they could limit your growth potential in several ways, including:
- Slower processing, increased errors and more system downtime as volumes grow
- Inability to fundraise or respond to market opportunities quickly
- Difficulty onboarding partners or vendors
- Less innovation due to lack of cash flow for experimentation
A scalable financial infrastructure is essential for ensuring your business can handle the demands of expansion and disruption, supporting things like cash flow, resource allocation, and compliance to promote agility and avoid bottlenecks as your business and operating environment evolve.
What Are the Finance Operations You Should Care About?
You’re probably familiar with the basic components of financial infrastructure: budgeting, forecasting, cash flow management and financial reporting. These components need to be in place for any financial operation. Here’s a quick overview of each of these components:
- Budgeting and forecasting: Accurate budgeting and forecasting help you allocate resources effectively and anticipate future needs.
- Cash flow management: Your monthly income statement and balance sheet are the primary indicators of your cash flow, which is crucial for both day-to-day operations and long-term investments.
- Financial reporting: Regular, standardized reporting gives you insight into your financial performance and supports informed decision making.
Start by Aligning Your Finance Operations to Growth Goals
The first step to making these components scalable is knowing where you hope to be in the future. This is where strategic objectives come in. Each finance operation can and should align to your company’s strategic objectives, be they expanding into new markets, launching new products or fundraising.
Key performance indicators (KPIs)—measurements that show progress toward your goals—are the bridge that connects your finance operations to your strategic objectives. Here’s how to set KPIs that align to your growth priorities:
- Clearly define top-level objectives: These could include increasing revenue, improving profitability or enhancing customer satisfaction. Ensure each department and team has specific goals that contribute to these objectives.
- Choose specific, measurable, achievable, relevant and time-bound (SMART) KPIs: Learn more about the do’s and don’ts of developing KPIs.
- Track and review: Monitor KPIs weekly, monthly or quarterly to identify trends and potential issues. Encourage employees to track and analyze their own as part of your corporate culture.
- Regularly adjust for relevance: Plan to adjust your KPIs as the business environment and strategic goals evolve.
Set Up Solid Finance Operations Management Practices
Evaluate Your Processes
Take a long, hard look at the workflows, policies, procedures and controls (practices that minimize risk) you have in place. Identify areas of friction, which will only become bigger problems as you grow. Do you have clear policies on expenses and invoicing to avoid unnecessary spending and delays in payment? Where can automation help? Create standard operating procedures (SOPs) for each of these areas so you don’t have to spend more time than necessary or add back-office services to get caught up after busy periods.
Evaluate Your Tools and Partners
The software and tools you use are an important factor in scalability. QuickBooks Payroll may be enough for right now, but an enterprise solution like QuickBooks Enterprise or NetSuite might be a better fit for the business you envision one or two years down the line. Are your payment platforms connected to your cash flow management, CRM and inventory systems? Ask your IT resource if they think your current tech stack can stand up to increasing volumes and data flows without dropping performance. Is it worth exploring cloud solutions to make that transition more seamless?
Now do the same with your vendors. Looking at your AP/AR history, can you see any points of friction or inefficiencies related to them? Do their application programming interfaces (APIs) and compliance practices play well with the rest of the partner ecosystem you intend to build? Can their systems handle the level of growth you’re aiming for within the expected timeframe?
Opt for Flexible Budgeting and Forecasting Processes
Budgeting and forecasting go hand in hand. There are several different types of budgeting methods, which produce both static and flexible budgets. For businesses with relatively predictable expenses and revenues, a static budget casts figures that stay the same regardless of changes that come into the picture. On the other hand, a flexible budget adapts figures to changes in revenue or other factors, allowing you to increase investment in successful initiatives or pull back on stagnant ones to cut your losses. As a result, flexible budgets support growth more effectively. Many software solutions provide continual budget insights and can even suggest changes to make.
Forecasting helps you anticipate market fluctuations, opportunities and risks to make informed strategic, resource and budgeting decisions. But you don’t have to use advanced techniques. Start in the near term: Create a simple 13-week cash flow forecast and learn how to prevent four common cash flow forecasting challenges before they happen.
Make It Scalable
A rolling forecast is a common way for many businesses to stay agile over time and scale up and down as needed. It analyzes internal and external factors over a given period, dropping the oldest increment and adding the newest one as time goes on.
For example:
- A 12-month rolling forecast covering January–December of 2023 is recalculated at the end of January to cover February of 2023–January of 2024.
- The next month, it’s recalculated to cover March 2023–February 2024, and so on and so forth—acting as a moving window into future performance.
Scenario planning is a slightly more advanced forecasting technique that involves creating multiple potential scenarios for the future, allowing you to explore different potential outcomes and plan and test contingency plans. AI is making it much easier for businesses of all sizes to perform scenario planning, but you can also do it manually with your team. For example: How might a sudden spike in the price of oil or a natural disaster in a key supplier region affect your operations? What kinds of tactics could you use to mitigate the impacts?
Building Reporting Processes To Support Scalability
Standardization
Robust reporting processes are essential for making data-driven decisions, but to be helpful, they must be standardized and occur at a regular cadence. On a basic level, standardizing reports means recording and summarizing the same information each time in a way that is understandable and extendable beyond your organization.
Ideally, your financial operations metrics and cash flow statements will be:
- Accurate and accessible. This may be a software solution, or it could mean bringing on a part-time bookkeeper to at least make sure your books are transparent, accurate and easy to find in a pinch—not locked up on someone else’s computer.
- Regular and uniform. Remember to focus on your KPIs and present them in a similar manner each time, allowing stakeholders to easily compare and make decisions. Consider using Generative AI (Gen AI) to create reports, making it easier to share and review more often.
- Understandable and easy to work with. In addition to visualizing information more effectively, Gen AI can also generate insights from your data to aid your thinking.
Standardization also makes it easier for outside entities and lenders to assess your finances for audit, fundraising, or merger or acquisition purposes—all common growth activities. You can create your own standards, but to prepare for growth, it’s a good idea to align to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on your ambitions.
Improved Decision Making
Scalable finance operations management simplifies decision making in times of growth and expansion in several ways:
- Efficiency: Scalable processes can handle greater volumes and complexity without major disruptions or process overhauls. This efficiency allows decision-makers to focus on strategy rather than getting bogged down in operational issues.
- Data-driven insights: Real-time reporting and analytics empowers leaders to make better decisions regarding resource allocation, market entry and investment opportunities.
- Agility: Scalable financial systems can be quickly adjusted to new markets, products or business models. This agility enables rapid responses to opportunities and challenges.
- Strategic alignment: Scalable financial infrastructure ensures financial processes and decision making are in sync with the company’s long-term vision and growth goals.
Planning for the Future
As your needs evolve, you may need to adopt more sophisticated finance operation management practices, such as predictive analytics, zero-based budgeting, developing compensation and benefits packages, and regulatory monitoring.
That said, building a scalable financial infrastructure is a critical step for any growing SMB, and managing the fires of today doesn’t mean future growth takes a backseat. By prioritizing foundational financial practices that are adaptable and support both current operations and future expansion, you can ensure your business has the financial foundation it needs to navigate the challenges of growth effectively to achieve its goals.
If you find yourself needing help, Paro’s fractional CFO experts can bring decades of experience and strategic vision directly to your business. Gain scalability with access to C-level expertise at a dramatically lower cost of hiring a full-time CFO.
