Armanino Blog

Optimizing Your Middle-Market Company's Finance Function

by Jenn McCabe
January 02, 2020

As a startup graduates to the middle market, its finance function needs to become more complex, and its finance team has to provide management and investors with more detailed information about the company's performance, growth opportunities and challenges.

For a mid-market company to thrive, you have to go beyond the "are we making money, and how much" questions that basic bookkeeping and accounting answer. You need to monitor the company's budget and spending to ensure your operations can continue, and you have to develop forecasting capabilities to identify opportunities and deploy the most effective investments to capture them.

In short, you'll likely need financial leadership — a CFO or controller — with more experience than your staff accountant or bookkeeper offers.

For instance, an important step in the growth of a middle-market business is taking on debt to provide working capital without reducing anyone's ownership. To do this effectively, you'll want a finance leader who has experience in setting up lines of credit, negotiating with banks and helping you comply with the resulting debt covenants.

You'll also want someone who can enhance the company's cash flow and operational planning, with a longer timeframe for those plans. Instead of the six to 12 months most startups look ahead, you'll need to think about your growth, operations and financial results two to three years from now.

Better Information, Better Decisions

Your CFO or controller will also start to prepare more professional performance reports that will help management make better decisions. The board, investors and lenders will want updates that go beyond profit and loss statements to include detailed narratives about market conditions, trends and competitors, as well as operational reports about the company's strategy, people and operations.

At the same time, the finance leader will help the company enhance its financial processes and optimize its technologies. The basic financial tools (like QuickBooks) that helped you reach the middle market probably won't be sophisticated enough to help you automate key financial processes, or they may only provide basic information that doesn't support effective decision-making.

In these situations, you should explore cloud-based customer relationship management (CRM) and enterprise resource planning (ERP) tools that provide business leaders with deeper insights into what's going on behind the P&L numbers.

The CFO or controller will also be asked to help management review their strategy. Typical questions in these discussions will include "how is the company executing," "where are the opportunities," "do we need to revamp this strategy" and other key decisions. If the long-term plan includes going public or selling the company, the finance leader can play a key role in setting up processes and systems to reach that eventual destination.

Hiring Options

Hiring a full-time CFO or controller is one way to get the finance expertise you need (note that competition for talent can be fierce). Many companies don't need a full-time professional at this stage of growth, however, so hiring an experienced fractional or interim finance leader is another route to consider.

A fractional CFO or controller works with one or more companies on a part-time basis. An interim CFO or controller joins the company's management team for a designated period, such as until the company completes a financing round. Either can be a cost-effective way to get the specific expertise you need.

Having the right finance leadership is critical to your company's continued success. The more professionally your business begins to operate, and the earlier it does so, the more value it will be able to generate during its development stages, its ongoing operations and as you pursue an exit or other strategy.

Interested in a fractional or interim CFO or controller? Learn more about our services here.

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Jenn McCabe - Partner, Outsource HR - El Segundo CA | Armanino
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