7 Signs Your Business Has Outgrown Its Finance Function
A finance function that worked perfectly well when a business was smaller may struggle to provide what management needs as the organisation grows.
That does not necessarily mean the finance team is performing badly. The business around it may simply have become more complicated.
More customers create more transactions. More employees increase payroll and reporting requirements. New offices, services, projects or business entities add further complexity. Management also starts asking different questions.
At that point, producing accurate accounts is still important, but it may no longer be enough.
A growing business increasingly needs its finance function to explain where profit is being made, what is happening to cash, which parts of the business are performing well and what its plans will mean financially over the next six or twelve months.
When the finance function cannot answer those questions quickly, the business may have outgrown the systems and processes that previously served it well.
What does it mean to outgrow your finance function?
A business has outgrown its finance function when its financial systems, processes or reporting no longer provide the information and control needed to manage the organisation effectively.
The accounts may still be completed. VAT returns may still be filed. Suppliers may still be paid.
The issue is often visible elsewhere.
Management information arrives too late to influence decisions. Cash requirements come as a surprise. Project profitability is difficult to establish. Different spreadsheets contain different versions of the same number. Senior people spend increasing amounts of time trying to establish what has happened rather than deciding what to do next.
These are signs that the financial infrastructure has not kept pace with the business.
1. Your management accounts tell you what happened, but not why
Monthly management accounts should help management understand the business.
If the conversation stops at turnover, gross profit and the bottom-line result, important information may be missing.
A growing professional services firm may need profitability by team, service line or office, alongside utilisation, WIP and debtor information.
A construction business may need margin by project, including variations, labour, subcontractor costs and overhead allocation.
A healthcare business may need to understand performance by clinic, practitioner, service or location.
What matters is whether management can identify what is driving the result.
If revenue has increased but profit has fallen, the finance function should help explain why.
2. Cash keeps producing surprises
Profit and cash are different, and growth can widen the gap between them.
A business may need to recruit before the additional revenue arrives. A construction company may have cash tied up in retentions and work completed but not yet paid for. A professional firm can report healthy fee income whilst carrying large amounts of WIP and outstanding debt.
When cash flow is managed mainly by looking at today's bank balance, management has limited visibility over what comes next.
A stronger finance function should be capable of producing a realistic cash-flow forecast that reflects expected receipts, payroll, tax, supplier payments, investment and other commitments.
The aim is to identify periods where cash could become tight early enough for management to act.
3. Too much financial knowledge sits with one person
Many successful businesses begin with relatively informal processes.
One person understands the bookkeeping. The owner approves payments. Somebody knows which customers normally pay late. A spreadsheet contains the information needed for a particular monthly calculation.
It becomes more vulnerable as the organisation grows.
If key processes depend on knowledge held by one individual, absence or staff turnover can quickly expose gaps. It can also make it difficult for other people to review the work or understand how a number has been produced.
Documented processes, system access and clear responsibilities may not feel urgent when the existing arrangement works.
Their value becomes clearer when the business needs to operate without relying on one person's memory.
4. Spreadsheets are becoming part of the problem
Spreadsheets remain useful tools and will continue to have a place in most finance teams.
Problems arise when important processes depend on several manually maintained spreadsheets that have to be copied, reconciled and updated each month.
A sales report may come from one system, payroll from another and project information from somewhere else. Somebody then has to combine the data manually before management can see the overall position.
As transaction volumes increase, this becomes harder to control.
The question is not whether the business uses spreadsheets. It is whether unnecessary manual work is delaying reporting or increasing the risk of errors.
Sometimes improving the finance function means changing software; more often, the existing systems are capable of more but have never been configured around the needs of a larger business.
5. Decisions are being made without financial modelling
Growth creates larger decisions.
Should we recruit five people or three? Can we afford new premises? What happens if a major customer is lost? Should we buy equipment or finance it? Can the business support another office? What level of borrowing would be comfortable?
These questions cannot be answered reliably from last year's statutory accounts.
Management needs forward-looking information.
That may include budgets, forecasts, scenario modelling and sensitivity analysis.
A good model does not tell management which decision to make. It shows the financial consequences of different assumptions so the commercial decision can be made with better information.
When significant commitments are routinely made first and modelled afterwards, the finance function is operating behind the business rather than alongside it.
6. Year-end adjustments keep revealing things management did not know
The statutory accounts should not routinely contain major surprises for the people running the business.
Some year-end adjustments are normal; the concern is when the process repeatedly identifies issues that were not visible in the monthly numbers.
Perhaps WIP has been overstated. A provision has not been updated. Costs have been allocated incorrectly. An old debtor needs to be written off. A project believed to be profitable is producing a much lower margin after all costs are included.
Where this happens regularly, the issue may sit with the monthly process rather than the year-end accounts.
7. The owner is still acting as the finance department
Owners of growing businesses often remain closely involved in payments, debt collection, payroll, pricing and financial reporting long after the organisation has expanded.
Some involvement is healthy, and financial oversight should remain with leadership.
The problem arises when routine financial administration continues to consume time that should increasingly be spent on clients, people, strategy and growth.
The right structure may involve a stronger internal team, better technology, clearer processes, external support or a combination of all four.
The important question is whether the current arrangement still matches the size and complexity of the business.
What should a growing finance function provide?
There is no single structure that suits every business.
A £5 million professional services firm will have different requirements from a construction company of the same size. A healthcare group operating from several sites may need different controls again.
As the business grows, however, the finance function should increasingly provide three things.
It should provide reliable information, so management can trust the numbers being used to make decisions.
It should provide visibility, so management understands cash, profitability, performance and emerging risks before they become year-end issues.
And it should provide control, so growth does not create unnecessary weaknesses around payments, systems, approvals or financial responsibilities.
The sophistication of the finance function should grow with the sophistication of the organisation.
Does a growing business need a finance director?
Not always.
There is often a considerable gap between needing better financial management and needing a full-time finance director.
A business may first need stronger monthly reporting, a reliable forecast or help improving the processes around the existing finance team.
Another may need regular strategic input from an experienced finance professional without requiring that person five days a week.
The right answer depends on what management is trying to achieve and where the current gaps are.
Adding senior finance capability should solve a defined problem. It should not become another layer of cost without a clear purpose.
When should you review your finance function?
A useful time is when the business is planning another period of expansion, investment or change.
Ask whether the information available today would allow management to make those decisions confidently.
Can you see which parts of the business are most profitable? Can you forecast cash several months ahead? Can you test the financial effect of a new hire, premises or investment? Can you produce reliable information without a lengthy manual exercise? Do financial processes continue to work when key people are away?
If several of those questions are difficult to answer, the business may have moved beyond the finance structure it currently has.
Finance should help the business look forward
Accounts remain an essential record of what has happened.
As a business becomes larger, finance also needs to help management understand what may happen next.
That shift does not need to happen overnight. The right next step might be better management accounts, a rolling cash-flow forecast, improved job costing, a system review or more senior financial input.
A business can be successful and still outgrow the processes that helped it get there.
Recognising that point early gives management time to strengthen the finance function before the gaps begin to affect growth.
At DSK Partners, we work with growing businesses across professional services, healthcare, construction and other sectors to improve financial reporting, forecasting and decision-making.
If your business has grown but your financial information has not kept pace, speak to DSK Partners about what the next stage of your finance function could look like.
Frequently asked questions about growing your finance function
How do I know if my business has outgrown its finance function?
Common signs include slow management reporting, repeated cash-flow surprises, reliance on manual spreadsheets, difficulty understanding profit by customer or project, and senior management making decisions without reliable forecasts.
Does a growing business need a full-time finance director?
Not necessarily. Some businesses need stronger internal processes or reporting first. Others benefit from part-time or outsourced senior finance support before there is enough work to justify a full-time finance director.
What should monthly management accounts include?
Management accounts should provide information relevant to the decisions the business needs to make. That can include profitability, cash, debtors, WIP, margins, budgets and performance by project, team, service line or location.
Why can a profitable business still have cash-flow problems?
Profit records income and costs under accounting principles, whilst cash flow reflects when money actually enters and leaves the bank. Growth can increase working-capital requirements, particularly where customers pay after staff, suppliers or subcontractors must be paid.
Can better finance systems help a business grow?
They can make growth easier to manage by improving the quality and speed of financial information, reducing manual work and giving management greater visibility over cash, margins and performance.
How can DSK Partners support a growing finance function?
DSK can work alongside owners and existing finance teams on management reporting, cash-flow forecasting, budgeting, financial modelling, systems and wider strategic financial advice. The support can be shaped around the stage and complexity of the business rather than applying the same model to every organisation.