Conquer Business Finances at Different Stages of Growth

As your business grows, your business finances become more complex. But with some preparation, an investment in the right tools, and access to financial expertise, you can conquer these challenges.

Here are 4 ways to make sure you’re ready for every stage of growth.

1. Prepare your Business Finances for Every Stage of Growth

There are 3 key stages of business growth, and each has its own set of financial challenges. Where you need to focus depends on the stage of growth you’re at. So recognizing where you’re at is the first step.

Getting Your Business Off the Ground

The earliest days of your business are all about planning and budgeting. What can you reasonably expect to bring in per month and how much do you expect to spend? And once you do start invoicing clients, how do you effectively manage the incoming cash?

• Challenge: Cash flow. When you start out, a huge challenge is often cash flow. As you generate business and develop your client list, you may be spending more than you’re making.
  • Solution: Planning and measuring. Don’t skimp on tracking and reporting on your finances. Invest in software that automates the most replicable tasks, and make sure you always know where you stand. Weigh every business decision against the facts you’ve tracked.
• Challenge: Invoicing and tracking expenses. You’re managing everything yourself, including the company finances. Tracking invoices and expenses by hand gets old quickly and easily erodes billable hours.
  • Solution: Centralized accounting software. Having an easy-to-use, accounting, and invoicing solution makes staying on top of paperwork day-to-day—and in preparation for tax time—a cinch.

Scaling Your Business and Your Business Finances

For a scaling business, managing your business finances is all about establishing a strong financial infrastructure and investing in good financial habits.

• Challenge: Managing a growing client base. As you grow, managing multiple clients and project types can become nearly impossible. And missing the mark on client service can have a hefty price tag.
  • Solution: Automation. In addition to simply developing a good billing strategy (e.g., billing on specific dates), an automated solution can keep track of projects and automatically generate invoices. Plus, automatic reminders and credit card payments make getting paid easier. Bonus: They also offer easy and accessible solutions for your clients.
• Challenge: More complex accounting. With a growing business comes more money coming in and going out, which leaves more room for mistakes or omissions that cost you time and money to fix—especially come tax time.
  • Solution: Bookkeeping. As your financial needs escalate, you likely won’t have the in-house expertise to manage them. A bookkeeper or bookkeeping service can help. In addition, make sure your accounting solution offers double-entry accounting so that all incoming and outgoing costs are effectively tracked.

Growth and Established Business Finances

With income and cash flow relatively stable, spending large amounts of money and increasing team size become realities. Your accounts have also likely gotten bigger and more complex. At this point, it’s all about finding the balance that lets you maintain profitability and secure greater growth.

• Challenge: Lack of resources. Once you’ve achieved stability, you begin to standardize the way you do business and look for ways to grow further. But sometimes you aren’t ready to get where you’re going alone.
  • Solution: Staffing. At this point, make sure you’re hiring for the team that will invest in your growth. That means paying competitive salaries, providing benefits, and investing in career growth. At this stage, there’s no room for stopgap hires.
• Challenge: Making sound long-term financial decisions. Hiring people brings a new responsibility. People rely on you, so you need to make sound financial decisions that keep your business on stable footing, such as minimizing tax liabilities and maximizing tax benefits.
  • Solution: In-house financial expertise. We’ll talk about this more in the next section, but every business reaches a point where its finances need industry-standard care. Otherwise, you leave your business—and every employee you’ve hired—at risk.

Pro-tip: Hiring staff comes with additional costs beyond just a salary. Learn more in “Growing Your Team? Here Are the Hiring Costs to Consider”.

2. Build a Team to Handle Business Finances

As you grow, you’ll make decisions about how you will manage your finances. Namely, how long can you manage them yourself and when is it time to bring in the experts?

Find an Accountant

A good accountant can help you manage your business finances in a number of different ways, including the following:

• Offering tax advice and filing tax returns
• Determining the right accounting system and processes
• Setting up a payroll system
• Applying for business loans
• Analyzing the pros and cons of financial decisions, such as purchasing versus financing, or leasing property and equipment

Your accountant can work with you to determine what’s acceptable for your business, such as whether you need to pay down debt or postpone borrowing. For example, never assume that a bank’s willingness to extend your credit is proof that your business is in a good position to take on debt.

Overzealous lenders may look more at collateral (assets the bank can seize if the loan isn’t paid), than whether your earnings can support debt payments. An accountant can help you catch easy mistakes like this before they happen.

Work With a Bookkeeper

Your accountant will do some financial record-keeping for you and your accounting software will help, too. But as you grow, your bookkeeping responsibilities also grow, and that’s not where you want to focus your time as a business owner.

If you’re finding yourself ignoring the books for long stretches, then scrambling at tax time to organize your expenses or invoices, it’s time to bring a bookkeeper on board. An organization like Bench can help connect you with the right bookkeeper for your business.

Not Sure If You Need a Bookkeeper or Accountant, or Both?

A bookkeeper records financial transactions, such as income and expenses, accounts receivable and payable, and even payroll.

An accountant takes that financial transaction information and uses it to analyze and report on your company’s business finances. Then, they offer advice on how to establish and maintain financial health.

Read more about the specific roles of bookkeeper and accountant in “Bookkeeping vs. Accounting: What’s the Difference, Anyway?”

Establish In-House Financial Expertise

As you start hiring staff for non-primary business activities, such as recruiting and IT, it makes sense to bring financial expertise in-house as well.

Having an expert on-hand, rather than a third-party resource, can give you the peace of mind that your financials are being taken care of. Did you know that wearing multiple hats can reduce your productivity by up to 40%? By shifting financial responsibility to someone else, you get an expert opinion and the opportunity to reclaim your productivity.

3. Prepare and Review Business Finance Reports Regularly

Whether you’re working with a third-party accountant or have in-house expertise, as the business owner you still need to have visibility into how your company is doing financially. And that means knowing your financial reports inside and out.

You don’t need to do a deep analysis of the numbers. You simply need to be able to identify the trends and red flags—such as unusual gains or losses—that tell you if your business is healthy or in trouble.

Financial Reports You Should Read

Your accounting software will generate the right financial reports whenever needed. Make yourself familiar with the following reports:

• Profit and loss report: Shows you how much money your company earns
• Balance sheet: Shows you your company’s assets, liabilities, and available capital
• Cash flow statement: Shows how much money is coming into and going out of your business
• Accounts aging report: Shows how much money is outstanding and who owes you money

Understanding these reports and comparing the numbers over time will give you crucial visibility into your company’s financial health.

4. Plan Ahead, But Stay Flexible

Growth may bring a certain level of stability in terms of revenue or the size of your team. But as it grows, a business needs to remain flexible in order to maintain profitability. Solutions that worked at one stage may not at another. Be willing to adjust your business plan and operations accordingly.

For example, consider a situation where you currently rely on a single anchor client or even a specific target industry for a large portion of your revenue. Suddenly, that client’s budget dries up or the industry takes an unexpected downturn. That loss can cause significant disruptions to your business—especially if you haven’t planned for it.

Will you have enough cash on hand to pay your employees? Will you need to incur debt to make up a shortfall?

Your ability to pivot quickly will help ensure your continued financial success. In the case of the example above, you’d need to find a new anchor client or target market to ensure revenue stays diversified and consistent.

If you’ve been nurturing smaller clients and projects in different industries, and have developed a cross-sell or upsell program, then you can target the clients most likely to take a jump from a small, one-off project to continuing work.

Your understanding of your business’s financial health will help you understand exactly what you need to make up.

Every Stage Has Its Own Challenges…

Every stage of your business will bring new and pre-existing challenges. If you manage your business finances effectively in earlier stages, this will set the groundwork for future success and give you an accurate reflection of your current business finances.

When you have real-time, accurate financial information coupled with financial expertise and an agile approach, you’ll be equipped to foresee upcoming challenges. With that foresight, you can make better business decisions and mitigate the increased stress levels that often come with growth.

This post was updated in December 2019.