Ready For Growth? A Checklist For CFOs Of High-potential Businesses

Executive summaryThis guide was written with a two-fold function: t o examine real-life examples of how thefinance function in high-growth businesseshas evolved, using eight case studies, andtaking key learning from them t o translate that learning into usefulpoints of consideration and guidance thathigh-potential businesses, both SMEsand larger companies, can implement inharnessing the full potential of their ownfinance function.The term ‘finance function’ in ACCA’s usagerefers to the broader application of thisfunction within a business, shifting frompurely being a book keeping and processingservice to a role more akin to that of abusiness adviser and, indeed, a key partnerto the business as a whole. The case studycompanies’ conceptual understandings of thefinance function were found to vary with thedifferent stages of their life cycles. In mostcases, the finance function initially fulfilledits traditional accounting role and its basicprocesses, but over time it evolved to playa more strategic role as each business grewand diversified. This evolution varied betweenthe companies, in some cases occurringorganically as a reaction to high growth,and in others being planned and directed inanticipation of growth, indicating that thereis no one-size-fits-all way in which the financefunction can be understood and has adaptedover time – this very much depends on thenature of the business, and the way in whichthe remit of the business itself evolves anddiversifies over time.The case study businesses’ trajectoriesunderscore the vital role of the CFO and, inparticular, that this role can best be harnessedto its full potential if other teams acrossthe company recognise its value, and areeducated in integrating aspects of the financefunction into their day-to-day work.At some point in their lifecycle, allthe businesses featured in this guidedemonstrated the ‘innovative turn’ involvedin high growth, driven by strategic internaldecisions to enter new markets, acquiringtechnical expertise that enabled thedevelopment of new products, or respondingdirectly to external stimuli such as consumerdemand for new technologies. Often, thisThis evolution variedbetween the companies,in some cases occurringorganically as a reactionto high growth, and inothers being planned anddirected in anticipationof growth.expansion entailed diversifying into newproducts and/or services, which carried withit certain risks. These included insufficientstaff capacity to respond to new workloads;increased processes and business ‘traffic’such as simultaneous deals; enteringnew, very competitive and/or politicallyunstable markets; and being very reactiveoperationally, meaning that processes werenot as smooth as previously.Key lessons for mitigating these risks andmanaging high growth included investingin new talent to meet the challenges ofthe new markets and diversified businessstreams; implementing new methodologiesfor managing change proactively; closelymonitoring growth and developing robustsystems of control to ensure that it didnot spiral beyond the company’s capacity;and harnessing the capacity of the financefunction not only to manage cash flows andcreate a safety net to boost the business’sreserves, but also to analyse and plan futuretrends to maintain growth.The case studies demonstrate a clearsymbiosis between business growth and theevolution of the finance function. The remit ofthe latter was almost always found to extendbeyond operational tasks and processesduring – and especially after – periods of highgrowth, often becoming a strategic businesspartner in itself driving this growth. In fact,the finance function and business growthcould symbiotically support each other,accelerating growth while developing the roleof the finance function. To enable the finance4function to initiate, enable and managehigh growth optimally, learning from thecase studies suggests that having the rightpeople and leadership in place is key, such asinvesting in creating a CFO role if one werenot in place before the growth. If the growththreatens to be overwhelming, the financefunction can be used to keep the supplychain alive by giving finance the authority toslow down new business where necessary,as determined by its knowledge of the cashflow and projections. The finance function isalso vital for regularly collecting and analysinghow the business is ‘trending’ in real time,presenting this data in an easily digestibleformat to management.The alignment of the finance functionleadership with that of other parts of thecompany also proved crucial, especially forfilling key skills gaps that impeded keepingup with the company’s growth, such as a lackof effective reactive support to the multichallenge nature of high growth, and difficultywith communicating financial information inan easily digestible format. In response, thecase study CFOs and financial controllersoften instigated coaching programmes forstaff and management, both to boost vitalskills and to adapt to new, more efficientways of undertaking and managing financetasks. This also involved careful attentionto performance management and, wherenecessary, making a strong business case forthe implementation of new systems.As part of its evolution to a key businesspartner in most of the high-growth businessesstudied, the finance function played a centralrole in the business planning of most of thesecompanies. In most cases, CFOs fed directlyinto business plans, providing key informationon current and future financial risks andopportunities, which ultimately determinedthe strategic decisions taken, such as whetheror not to proceed with a particular acquisitionor diversify into a new market.In summary, the case study high-growthbusinesses clearly indicate that the financefunction sits at the heart of a truly evolving,dynamic business. To enable this function toreach its full potential, it is vital to implementstrong financial management, with acomprehensive bird’s eye view over how thefinance function interacts with operations andinforms strategy.

1. What is the finance function?Technically, the term‘finance function’defines the processes ofidentifying, acquiring,managing and using thefunds of a business.Technically, the term ‘finance function’ definesthe processes of identifying, acquiring,managing and using the funds of a business,which, in practice, are processes administeredby a finance person or team responsiblefor accounting systems and processes,controlling financial resources, and othertechnical or support aspects. The term has,however, evolved to be used in a broaderway, an evolution underpinning ACCA’sfundamental aim of shifting the perception(and reality) of the purpose and value ofaccountants as providing traditional bookkeeping services to that of a role more akinto a business adviser. As will become clearover the course of this guide, existing SMEshave likewise begun to explore the broaderscope of financial professionals within theirstrategic remits, integrating them increasinglyas business partners. This section examinesthe eight case study SMEs’ understanding ofthe purpose and remit of the finance functionin their business, and how this has evolvedover time. It then provides a guide to helpSMEs conceptually and operationally unravelthe specific responsibilities of their financefunction, and how it should optimally bestructured in the future.CONCEPTUAL UNDERSTANDING OFTHE FINANCE FUNCTIONThe CFOs and financial controllersinterviewed for this research indicated threebroad levels on which the finance functionin their business was understood. Firstly, itwas seen as a traditional accounting andtreasury remit, a ‘full service function’ as oneperson phrased it, rather than a strategicone. As another interviewee commented,the finance function is something ‘traditionaland conventional’, consisting largely of‘pure accounting tasks’, such as handlingthe accounts payable, cash managementand reporting, as well as producing reportsfor budget forecasting. These services wereseen as particularly important in marketswhere bank finance was less readily available(such as Vietnam and Mauritius), meaningthat the finance function absorbed numerouscompliance issues such as taxes, customduties, VAT and so on.Secondly, several interviewees acknowledgedthese traditional roots of the finance functionin their business, but indicated that theboundaries were beginning to blur andthat the function was steadily evolvinginto a strategic role alongside that of coreoperational processing. For example, oneCFO stated that, while the finance functionin their SME was primarily about ‘traditionalfinancial reporting, global treasury and riskmanagement, along with a less traditional5component of more general data quality,IT/financial management and assetmanagement’, this also definitely informedthe strategic side of the business, e.g. whenanalysing the feasibility of opening newoffices in new locations, country-level risk,and capital funding requirements. In anothercase, finance was also understood largelyin terms of its traditional functions, but alsoas an element responsible for budgeting,forecasting, multi-management reporting,cost centre management, and HR control. Inthis way, as another interviewee commented,the finance function could be seen as ‘thebusiness partner of the other functions insupporting business operations.’Finally, it was clear in the case of twobusinesses that their finance function wasintegral to the business itself: part of itsnature and growth, rather than an auxiliaryaspect of these. In one case, the CFO’sunderstanding of the finance function wasone of ‘transactional processing expertise,with key roles related to treasury and riskmanagement’, but, crucially, a more significantportion of the finance function also dealt withanalysis, evaluating current and future deals,and tracking ROI. Considering the function’sintegration with the business itself, therefore,as the CFO stated: ‘it is the business, primarilybecause we’re an investment company’.Likewise, in the other business there was aconstant need for awareness of ‘what’s goingon with technology internationally, so it’s therole of the finance function to search themarkets to see the latest trends and wherethey are going’, as the financial controllermade clear. In this context, the financefunction is a key strategic partner in thebusiness as it helps to determine where thecompany’s investment goes.EVOLUTION OF THE FINANCEFUNCTION OVER TIMEAmong the majority of the SMEs studied,the finance function had been fulfilled bythe owner/founder at inception, rather thanhaving a fully financially trained member ofstaff in post from the start. Most typically, theowner tended to oversee finance and oftenused external agencies for additional support,subsequently hiring basic administrative,payroll and tax in-house support. Twocompanies did have a professional financepost embedded from the start, as this was‘deemed important and a matter of course’,in establishing any new business, as one CFOcommented, while the other emphasisedthat this first finance professional was solelyresponsible for book keeping rather than anystrategic aspects.

Ready for Growth? A checklist for CFOs ofhigh-potential businesses1. What is the finance function?In all cases, the businesses took on oneor more professional finance employeesand a managing CFO/director/controlleronce they had reached a steady stageof growth (though not necessarily highgrowth, as previously defined). Often, thiswas a somewhat reactive development; forexample, in one case the founding membertook the role of the finance function whollyupon himself until demand/volume grew sohigh that he had to employ a CFO to helpmanage the strategic demands of financealongside the processing ones. He had notplanned this in advance. Another intervieweecommented that the first financially trainedmember of staff (acting as financial controllerand accountant) was hired because thecompany lacked the quality staff to take thisdevelopment fully forward.decreased, with all the SMEs currentlyundertaking most or all of their financialwork in-house. The exception to this is thecontinued use of external agencies for legal,tax and other compliance issues, especially ifthey are working in overseas markets and maynot have specialist local knowledge in-house.Some have also sporadically used externalsupport to help bridge periods of highgrowth. Some previously outsourced roles didnot have a direct connection with high growth.A key reason for moving these in-housewas to anticipate and so plan carefully forgrowth, and to have a more cohesive overviewof what was happening financially ‘on theground’. This enhanced managers’ ability tomonitor and control financial operations andprocesses, especially if revenue streams haddiversified and become more complex asthe number and geographical distribution ofclients increased.In another case, before the appointment ofthe current finance and treasury manager,who was interviewed for this research, therewas no one in this post. The role was createdto fill a need on the global treasury side,following a major acquisition that almostdoubled the firm’s staff and led to theopening of 26 more offices. In this case, it wasdecided at this later stage that it was vital tohave a well-coordinated finance and treasuryfunction: ‘someone to sit in headquarters’and oversee the function.Conversely, some SMEs had hired their firstCFO/director more proactively at the onsetof a period of high growth, ‘to help keep abird’s eye view over everything’, and instigate‘new thinking’ about the potential strategicand forward-forecasting role that the financefunction could play. Likewise, another CFOwho was interviewed and who was the firstin this post in the SME, had constructed newguidelines for the financial systems, roles andbusiness development input, thus providing acrucial strategic boost for the finance functionin advance of the need to manage high growth.The use of external support for the financefunction had also evolved over time. Most ofthe SMEs had, in their earliest days, relied to asignificant extent on outsourced assistance inan advisory as well as processing capacity. Inthe cases of subsidiaries, they had a consistentblueprint or guide as to how, broadly, toestablish and enact the finance function, butwith flexibility. Over time, the use of externalagencies in this context had significantlyOverall, as is evident from the case studies,the finance function can be seen as highlydynamic, evolving from being largely abook keeping service in the start-up andearly stages of a business, to a much morestrategic level as the business develops,diversifies and expands. ‘As the businessgrows, so does the scale and complexity offinancial management’ (ACCA 2013: 10). andthe need for greater sophistication withinthis remit. This evolution, however, takesdifferent forms, in some cases occurringorganically and reacting to high growth, andin other cases being planned and directed inanticipation of growth.CRITICALLY UNDERSTANDING ANDMAPPING THE FINANCE FUNCTIONThe case studies have shown that there isno one-size-fits-all way in which the financefunction can be understood and adaptedover time – this very much depends on thenature of the business, and the way in whichthe remit of the business itself evolves anddiversifies over time.Given the importance of the CFO’s role inshaping and managing a business’s financefunction, the following guidance providessome key points for how this role can beunderstood, the responsibilities it holds,and a checklist of useful questions to ask toensure that the role is being enacted to fulfilits best potential for the business.6THE CFO’S ROLE‘Move from bean-counter tobean-grower.’Gary Cokins, Founder,Analytics-Based PerformanceManagement LLCThe chief financial officer (or finance director)of a high-potential business is at the heartof the company’s strategy, operations andperformance. It is recognised that the CFO’srole is integral to corporate success to theextent that it is not, in reality, a separatefunction from the rest of the business. Thephrase commonly used is that the CFO is ‘apartner to the business’.This means that the CFO works closelywith the chief executive and the seniormanagement team, helping to construct acohesive business development strategy,maintaining a forward-looking and proactivestance, and being connected with everypart of the business. This may be seen as ademanding list of attributes, not least becausethey typically involve role requirements thatare in opposition to each other: T he CFO has to look to futureopportunities while being responsiblefor accurate and informative financialreporting of the past. T he CFO has to drive the business forwardwhile being the person most heavilyinvolved in assessing risk. T he CFO is ideally placed to see thebigger picture – the trends and gamechangers taking place at a macro level inthe business’s sector and in the economy,which other people in the company maymiss in their day-to-day lives – and yetmust always pay close attention to detail. T he CFO needs to help push the businesstowards its revenue objectives, while at thesame time keeping very tight control overcosts and cash. T he CFO has a role to play in making itpossible for everyone in the business toachieve the company’s objectives, while atthe same time having the controls in placethat enable him or her to play the role ofcorporate watchdog.

Ready for Growth? A checklist for CFOs ofhigh-potential businesses1. What is the finance function? T he CFO is ultimately responsible to thebusiness owners, who are looking forprofitable growth, while at the same timebeing accountable for ensuring regulatoryand tax compliance.Rapidly growing businesses sometimes getcarried away with spending money to fuelexpansion. As a way of mitigating this, theCFO needs to keep control of spending butwithout reducing the business’s potential.To maintain this balance, the CFO shouldconduct regular reviews of how companymoney is being spent, and how thatexpenditure will add value to the businessand assist in its growth plans. Such reviewswill then help both the person/departmentmaking the expenditure and the CFO tomake the right decisions together.‘In our natural accountantpsyche we are trained to lookat the details and the precision.The problem is, sometimes weare looking at every single treein the forest and we fail to seethe forest – and we fail to seethe development around theforest. When your competitorsare growing or when theproducts are changing, the CFOplays a very vital role to be ableto interpret the big numbersand the trends in the market’Gabriel Low, CFO GEA WestfaliaSeparator / GEA MechanicalEquipmentThese conflicting demands on a CFO’s timeand effort can be reconciled by thinkingof the role as that of a lens that focusescorporate energy in the direction required,rather than allowing it to dissipate innumerous directions.Producing accurate, timely and relevantmanagement information (ACCA 2013:6) is often regarded as the CFO’s firstduty. It is essential that this informationcan be digested and understood by themanagement team so that they can takeaction accordingly, whether that be correctiveaction or to capitalise on opportunities. Arecommended course of action here wouldbe for the CFO to consider investing sometime in training non-financial members ofthe management team, to increase theirunderstanding of the finance function andhow financial information is reported tothem, thus deriving more value from thisinformation and ultimately equipping them tomake better decisions.The CFO needs a full understanding ofthe profitability of the various products orbusiness units within a high-growth business.CFOs often direct their attention to businesslines that are underperforming or in financialdifficulty. While that is understandable and,indeed, unavoidable, the CFO also needsto make sure that business units that areperforming well are, in fact, performing totheir full potential. This, in turn, requires CFOsto have excellent commercial skills: they needto understand the business fully, as well as theindustry and market in which it operates.‘Accountants are called beancounters: so go and find wherethose beans are grown. Getout into the business, attendteam meetings of differentdepartments so you canunderstand their issues andwhat’s going on and how it’sworking. Read relevant tradejournals, attend conferences –whatever it takes to really getunder the skin of the businessrather than just produce thenumbers. It will really help youbring the numbers to life. Itwill tell the story’Andi Lonnen,Managing Director,Finance Training Academy7When a business is in a high-growth stage anddevelopments are progressing fast, it is easyto make mistakes. CFOs need to understandthat people can be very wary of the CFO’scontrollership role and, consequently,reluctant to share bad news or concerns. Byappreciating that perspective and fosteringan environment oriented towards findingsolutions and not scapegoats, the CFO will bebetter placed to encourage greater openness,which will in turn allow the business to addressemerging problems more quickly.The CFO needs to be ‘future ready’ so thatthe necessary knowledge and skills are alreadyin place when, for example, the business isready to start exporting or entering marketsthat have different business models.The full potential of the CFO’s role can beharnessed if other people and teams in thecompany recognise the value that the CFOand the finance function as a whole bring tothe business. It may be, for example, that anunasked-for analysis of customer profitabilityconducted by the CFO and their teamreveals useful information that can be actedon by sales teams. Similarly, ‘financial dataand analysis can support other areas of thebusiness: for example, helping marketing staffassess the impact of different pricing optionson sales and profits’ (ACCA 2013: 8). Likewise,teams responsible for operations may beunaware of the tax benefits of buying moreexpensive but energy-efficient equipment;the CFO and finance team can also informthem about this. The more the CFO candemonstrate how the finance function canadd value, the more likely it is that peoplein the business will approach the CFO whenconsidering decisions rather than afterhaving made them, thus making the strategicapproach at all levels more proactive ratherthan reactive.

2. The growth agendaAmong today’s highgrowth businesses, therate of product andservice innovation isaccelerating but this, inturn, shortens productlife cycles and servicerelevance.Among today’s high-growth businesses,the rate of product and service innovationis accelerating but this, in turn, shortensproduct life cycles and service relevance.No matter how good a product or servicemay be, if a rival develops something betterin a few months, then customers – who areshowing ever-decreasing brand loyalty – willshift their allegiance. Businesses thus havesmaller windows in which to exploit theircompetitive advantage before their outputbecomes outdated.High-potential businesses, however, cansee beyond these barriers to a worldof opportunity where they can achieve‘outrageous success’:‘Think about what “outrageoussuccess” would look like foryour business – and obviouslytie that to the targets of all thepeople that need to work atthis in your business’Andi Lonnen,Managing Director,Finance Training AcademyWhile there is no shortage of businessesprepared to take on that challenge, thisrequires

experienced high growth. For the purposes of this research, 'high growth' was defined as over 70% growth during a period of three consecutive years (a derivative of the OECD definition of high-growth firms). Participants were also sourced via ACCA's network of national offices. Although this report has integrated the