From Start Up To Starbucks When Do You Need A CFO

Mar 14, 2011

 Growth Stages

Companies must go through some key transitions as they grow – or they will fail to evolve into professionally managed entities.  Starbucks began as a coffee roaster with two stores in Seattle in 1984, and grew to over 2,000 stores and $billions in revenue over twenty years.

The growth transition moves from the early entrepreneurial start-up when everyone wears many hats and the focus is on revenue generation; to more established companies that are building organizational systems; to larger companies that have sustainable business models, experienced staff and have created a high business value.  How do you ensure you can transition safely from a shaky start up to create a valuable business enterprise?  For many companies a CFO is a key component of the growth strategy.  Hiring a seasoned part-time or virtual CFO is an excellent strategy for building a solid company and maximizing business value from the beginning.

The Start-up Company – Revenues of $0 – $ 3 million

Start ups face a variety of problems – usually all at once.  Finding a market need, developing a product, obtaining business funding, and finding employees will occupy the entrepreneur and lead quickly to the next stage.  As sales increase the importance of working capital grows: more inventory, stretching accounts receivable, balancing vendor payments.  More space, more equipment, more people – days stretch 18 hours or more as activities become more frantic.  With little time for planning, the firm’s processes such as marketing, service delivery, accounting, personnel soon become overwhelmed.  This is a key moment for the company – will it develop the capacity to move to the next stage or will it implode?

Growing pains are experienced in several ways and are not hard to recognize:

  • There are not enough hours in the day
  • No-one knows what’s going on
  • The owner is wearing too many hats
  • Plans are not made, or not followed
  • There are not enough managers or delegation is lacking
  • Revenue is the focus rather than profit

The solution to these problems is clear.  An organizational infrastructure is urgently needed to facilitate product and service delivery and introduce planning and control to the firm.  At this stage the part-time CFO is a key contributor taking on such areas as working capital management, procedures, financial plans, cash flow, fund raising and management of the accounting function.

Expanding Company – Revenues of $3 to $10 million

The company has now progressed beyond the start up phase.  Sales are strong, but expenses are growing too.  More staff require more management, and customer fulfillment is more complex.  Turnover cycles are increasing as more sales mean more inventory, vendors, employees to keep the machine moving.  Some of the symptoms you may experience include:

  • Sales and production are out of synch with frequent out of stocks and mis-information
  • Accounting records are confused and errors occur
  • Product quality takes a dive
  • Computer/ network  issues cause havoc
  • Cash flows are unpredictable

At this stage the need for functional operating systems becomes very clear, to enable the company to operate at maximum efficiency.  Accounting systems need an overhaul, network up time requires professional management, planning is essential.  The entrepreneurial CFO can now contribute with more sophisticated challenges such as budget development, internal control, management dashboards, building profitability, working with banks, attorneys, auditors, business intelligence and timely financial reports.

The Mid Size jump – Revenues of $10 to $100 million

The company has survived the early stages and is now growing fast.  The company now has to make the transition for an entrepreneurial focused company, to a professional managed organization. This presents one of the biggest challenges for most entrepreneurs: we need more formal planning, more meetings, defined responsibilities, better control systems.  This is the stage when Steve Jobs the creative hands off the John Scully the professional manager.  Some of the key differences in this stage from the early growth stages are:

  • Profit must be planned for explicitly
  • Strategic planning charts the firm’s growth
  • The company organization becomes more formal with job descriptions, and clear responsibilities
  • Performance management including budgets, management development and control systems is introduced.

The part-time CFO plays a key role at this stage and may be involved in acquisitions work, due diligence, internal audit, performance management, risk management, building a larger accounting department, evaluating systems performance, vendor management, policies and procedures and getting ready to hire a full time CFO.

The affordability of a part-time B2B CFO lowers the barrier to establishing your company and making the gowth transition as a survivor.  Moving through the growth stages requires a lot of help, but the rewards of creating a large, established, professionally run organization are significant.  Call David Kirkup, partner with B2BCFO on 404 348 0326 to get started today.


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