Planning a Successful Exit: How Venture-Backed Companies Can Remain Funding Ready at All Times

In our last article we explained the differences between private equity and venture capital, along with the various stages of venture capital financing. In this article, we discuss the importance of remaining funding ready and how to accomplish this.

Venture capital companies have an insatiable appetite for cash. It takes capital to invest in the technology, R&D, new product development and staff needed to fund ongoing growth.

This capital is usually raised in stages, starting with the pre-seed and seed stages and progressing through Series A, Series B and onward for as long as capital is needed. Unfortunately, four out of five companies that receive pre-seed and seed funding never make it to Series A. And nine out of 10 companies that receive pre-seed and seed funding don’t achieve a successful exit.

Prepare for Financial Due Diligence and Auditing

The key to making it to the next funding stage is to remain “funding-ready” at all times. This starts with preparing for financial due diligence and auditing during the pre-seed and seed stages. These steps typically include the following:

  • Gather formation documents (e.g., articles of incorporation, bylaws, shareholder agreements).
  • Identify and build relationships with professional services providers (e.g., CPA, banker, attorney, insurance broker).
  • Prepare revenue and gross profits by product offering.
  • Obtain audited financial statements for the last two (private company buyer) or three (public company buyer) years.
  • Consult with an audit firm about complex accounting requirements (e.g., revenue recognition, leases, stock options, convertible debt).

It’s also critical to adopt financial best practices during the pre-seed and seed funding stages. This starts with building a top-notch financial and accounting system with well-organized financial files. Your system should include monthly reporting and establish strong internal controls over financial reporting while accommodating corporate tax requirements and deadlines. Also invest in an appropriate enterprise resource planning (ERP) system for your needs.

8 Steps to Remain Funding Ready

Here are eight more steps you can take to remain funding ready at all times:

  1. Implement accurate budgeting and forecasting. These provide the foundation for successful financial management. Investors want to compare current and previous periods so budgets and sales forecasts should be prepared on a monthly, quarterly and annual basis. There should also be common definitions of finance functions across the various time periods.
  2. Establish sound collection practices. This is especially critical for early-stage venture-backed companies. Statistically speaking, the longer invoices go uncollected, the less like they are to ever be converted to cash. Therefore, early-stage companies should implement policies and procedures designed to ensure prompt collection of accounts receivable.
  3. Utilize financial metrics, benchmarking and data analytics. Sometimes referred to as key performance indicators, or KPIs, these are quantifiable statistics that help define and measure progress toward key business objectives and other critical success factors. Common financial metrics include debt-to-equity, accounts receivable (AR) and accounts payable (AP) days, days sales outstanding (DSO) and inventory turnover.

These metrics should be benchmarked to previous time periods (e.g., the last month or quarter) or industry standards to spot trends and help reveal potential problems while you can still address them. RMA’s Annual Statement Studies is a good source for industry-specific financial metrics.

  1. Incorporate cash flow management. Startups can burn through cash quickly, making cash flow management critical. The key is to decide which expenses are essential and will lead to increased market share and growth and which expenses are wasteful. Devise monthly cash flow plans to make sure your business remains liquid at all times.
  2. Create a formal sales compensation structure. Sales is the main engine that will drive growth so your sales comp plan needs to be structured and formalized no later than the Series B funding stage. Most sales comp plans today include a base salary plus benefits in addition to commissions and bonuses to incent and reward top salespeople for high performance.
  3. Create a fundraising project plan and investor presentation. At each funding stage, investors will want to see how you plan to raise enough capital to carry the company through to the next stage. Prepare a formal presentation with these details that you can share with investors during your “pitch” meetings.
  4. Use GAAP accounting and revenue recognition. Series A and Series B investors will expect to see financial statements prepared in accordance with generally accepted accounting principals, or GAAP. At this stage, GAAP reporting should be timely and accurate. The following three major financial statements are required under GAAP:
  • The income statement
  • The balance sheet
  • The cash flow statement
  1. Prepare for potential international expansion. Depending on your products/services and your industry, Series B and Series C investors may inquire about how your company can tap growth opportunities overseas. So, prepare an international expansion plan that details these opportunities, along with the potential risks and costs of overseas expansion and any statutory international compliance requirements.

Using Finance as a Service (FaaS) to Build an Optimized Finance and Accounting Team

Venture-based startups can build an internal finance and accounting team or outsource this function. Outsourcing using Finance as a Service (FaaS) tends to be far more effective for the majority of pre-seed and seed companies.

Building an optimized finance and accounting team in-house typically takes from 9 to 18 months, but an outsourced FaaS approach can accomplish this in as little as 30 to 90 days and at a fraction of the cost. 

Consero can help you build an optimized finance and accounting team using FaaS so you remain funding ready at each stage. Connect with Consero by requesting a complimentary consultation to discuss your situation in more detail.

Understanding the Various Stages of Venture Capital Financing

Like kindling to a campfire, most startup businesses need capital in order to grow. This capital comes in two main forms: debt and equity. Debt is self-explanatory: This is money that’s borrowed from a lender or raised from a bond issuance that must be repaid with interest. 

Meanwhile, there are two different kinds of equity: private equity (PE) and venture capital (VC). There are important differences between them that you should understand before seeking equity financing for your company.

VCs Invest in Growth Companies

To understand these differences, you must first understand the different objectives of PE and VC investors. In short, private equity investors want to invest in businesses that are profitable, while venture capital investors want to invest in businesses that are going to grow. There’s a big difference between the two.

Right now you might be thinking: “But doesn’t every business want to be profitable?” Yes, but profitability isn’t always the main objective, especially during the early stages of a startup company. Technology giants like Amazon and Google are good examples of companies that operated at a loss for years so they could invest all of their cash back into the business in order to grow. 

These companies and their investors were taking the long view: They weren’t worried about becoming profitable right out of the gate. Instead, they wanted to grow as much and as fast as possible so they could eventually dominate their industries. They knew that if they could become the dominant online retailer and search engine, profits would soon follow. Of course, this strategy worked well for both of them.

Also, market capitalization — which is a main focus for VC investors — is calculated as a multiple of revenue, not earnings. So the faster a company grows, the higher its sales and market cap will be.

Stages of VC Financing

Venture capital is usually raised in stages because successful growth companies always need more money in order to keep growing. Think of it like pouring gasoline on a fire: The more capital a business has, the more salespeople it can hire and the more it can invest in technology, research and development, and new product development to spur growth.

Pre-Seed:

The first stage is called the pre-seed stage. Here, there may not even be a real business yet — it might just still be an idea or concept in an entrepreneur’s mind. Funding at this stage usually comes mainly from family and friends or out of an entrepreneur’s own pocket, not from venture capital investors.

Seed:

The next stage, or the seed stage, is the first stage where venture capitalists might get involved. There still might not be a lot of revenue but there’s strong evidence that the seeds of a successful business have been planted. Real (not prototype) products and services are being delivered to the marketplace and a management team is in place that’s capable of executing the business plan.

Series A:

The next stage of funding is called Series A. At this stage, VC investors want to see a real, operating business with repeatable sales and marketing processes that can acquire customers on a consistent basis. The business should be utilizing financial modeling and long-range planning and have adequate internal controls, along with a fundraising project plan and investor presentation

Beyond Series A:

Subsequent funding stages after Series A are called Series B, Series C and so forth for as long as the business needs to raise capital. Venture capital investors will have specific expectations at each funding stage.

Always Be Funding Ready

The biggest thing to keep in mind when it comes to venture capital financing is the importance of being “funding-ready” at all times. Remember that as long as you intend to keep growing, you will always need more capital — so you should always be ready to proceed to the next stage of funding.

Unfortunately, four out of five companies that receive pre-seed and seed funding never make it to Series A. And nine out of 10 companies that receive pre-seed and seed funding don’t achieve a successful exit.

Building a strong finance and accounting team is critical to maintaining funding readiness This can be done internally or on an outsourced basis, which tends to be more common among pre-seed and seed startups.

Consero can help you build the efficient and scalable finance and accounting function you need to stay funding ready throughout each financing stage. Request a complimentary consultation today.

2022 CFO Outlook Survey: CFOs Are Optimistic, Despite Ongoing Growth Obstacles

A recent survey of middle market CFOs contains both good and bad news for business leaders. First, the good news: More than a third (66%) of CFOs expect their businesses to be thriving a year from now.

The bad news? Most middle market CFOs say their companies’ growth didn’t meet expectations last year. Just 38% of them said that their company experienced strong financial performance in 2021. These are just a few results of the 2022 BDO Middle Market CFO Outlook Survey, which is conducted annually.

Hurdles to Business Growth

The path to business growth in 2022 and beyond will not be without hurdles, according to the survey respondents. The biggest concerns voiced by CFOs in the survey are:

  • Ongoing supply chain disruptions (84%)
  • Talent shortages (79%)
  • Tax reform (79%)
  • Potential COVID-19 resurgences (78%)

While challenges abound, so do opportunities. This is especially true when it comes to embracing new priorities at the forefront of business and stakeholder agendas like impact, purpose and sustainability. About one-third (64%) of the CFOs who responded to the BDO survey said they believe that implementing an environmental, social and governance (ESG) program will improve their long-term financial performance.

While just one out of three (36%) CFOs said their companies are actively pursuing a sustainability strategy now, virtually all of them (99%) said their company has at least one stated ESG objective this year.

BDO CEO Wayne Berson put it this way: “The next ten years will be driven by a mindset of sustainability and stewardship that prioritizes the needs of all stakeholders while accelerating digital innovation to create lasting business value.”

More Survey Responses

Digging deeper into the survey responses, CFOs view rising material costs (cited by 41% of respondents) as the greatest supply chain-related threat. This was followed by supplier delays (36%), supply shortages (35%) and transportation costs (35%). Accurate demand and inventory management was listed as CFOs’ top supply chain priority this year.

The top workforce challenge listed by CFOs this year is retaining key talent (42%), followed by attracting new talent (39%). To address workforce challenges, CFOs say their companies plan to invest in flexible work arrangements (42%) and increase employee compensation (40%).

Innovation was listed as the number one business priority for 2022 by the survey respondents. Their top strategy for achieving this is collaborating for greater network value (48%), followed by pursuing a joint venture (25%).

Mergers and acquisitions also appear to be a part of CFOs’ plans this year. On the heels of the hot M&A year in 2021, about one-third (31%) of the survey respondents say their companies plan to pursue M&A in 2022, which is up from 24% who said this last year and 25% who said it in 2020. 

The number one strategic goal cited by CFOs for pursuing M&A deals is enhancing their digital capabilities. Over half (53%) of CFOs said their companies plan to pursue digital transformation this year.

Using FaaS to Achieve Growth Objectives

One way CFOs can achieve business growth objectives in 2022 is by managing their finance and accounting function in the cloud. Finance as a Service, or FaaS, makes use of the best finance operation management practices by leveraging advanced technologies like artificial intelligence, machine learning, cloud computing, automation and more to streamline finance and accounting. This can result in lower costs and greater scalability and financial visibility to improve decision making for CFOs.

FaaS is also flexible and provides more control over finances than traditional accounting systems. This will enable you to spend less time on administrative tasks by eliminating the need for manual data entry while eliminating work cycle delays that occur due to waiting for accounts payable or payroll department approvals.

The (79%) concern for talent shortage is easily solved with the Consero FaaS solution. Consero offers a fully managed software & services platform that’s equipped with a skilled finance team along with pre-integrated, enterprise-grade finance and accounting software, featuring digital processes and workflows. With Consero’s FaaS cloud-based finance and accounting solution, you can complete a full digital transformation in 30 to 90 days — much less time than it would take to build an in-house finance and accounting function. 

CFO’s report 1/3 of their workweek is dedicated to managing a finance team. With Consero’s FaaS, business continuity risk is also lowered because companies leveraging FaaS do not need to recruit, hire, train, retain and backfill the finance team. This leaves executives more time to focus on what they do best, growing the business.

To learn more about the benefits of FaaS and Consero’s integrated finance and accounting platform, please request a complimentary consultation.

How to Realize Value from Cloud Computing

Cloud computing has come a long way in recent years as business leaders have overcome initial concerns about the security of storing and transmitting sensitive data in the cloud. Fully three-quarters of business leaders today are engaged in a cloud strategy, according to PwC’s inaugural US Cloud Business Survey, while nine out of 10 say they are “all-in” on cloud or have adopted it many parts of the business.

In addition, more than half (56%) of executives see the cloud as a strategic platform for growth and innovation. Unfortunately, nearly as many business leaders (53%) say they have yet to realize substantial value from their cloud investments. In other words, there’s a substantial value realization gap when it comes to recognizing and realizing the potential of cloud computing.

What Executives Want from Cloud Computing

The main business outcomes executives who responded to the PwC survey said they seek are improved resiliency and agility, better decision-making, and product and service innovation. Each was listed by about a third of the survey respondents. However, only about half of them said they have achieved these cloud objectives.

So what can business leaders and executives do to try to close the value realization gap with cloud computing? The PwC survey suggests four potential strategies:

1. Get in alignment on strategy and value. The survey found disconnects among executives when it comes to defining and quantifying the value of cloud computing. About a quarter of them define value as achieving faster innovation, while 20% define it as improved resilience and 19% define it as increased revenue. These differing views are symptomatic of the fact that some companies haven’t made clear strategic choices when it comes to their cloud investments.

The key is to make your cloud strategy part of your overall business strategy. To do so, you must make specific choices about how cloud computing can differentiate your business. For example, what digital and technology capabilities will cloud computing allow you to develop? What customer problems will it help you solve? And how can you embed cloud computing to enable end-to-end digital transformation?

2. Bridge the digital talent divide. The shift to the cloud has intensified the talent challenges many businesses today are facing. More than half (52%) of respondents to the PwC survey say that a lack of technology talent (such as cloud architecture and cybersecurity) is a barrier to their companies realizing full value from their cloud investments.

One way to solve this problem is to implement digital upskilling for all employees, not just technology employees. A digital upskilling program should focus not only on enhancing technical skills, but also on teaching new ways of working and creating new learning pathways. It should also develop programs designed to cultivate cloud computing skills.

3. Address risk concerns and build trust. Half of the PwC survey respondents view security and business risks as a significant barrier to realizing the value of cloud computing. In particular, they’re concerned that relying on third-party cloud service providers could increase their vulnerabilities and erode trust with customers, employees and other stakeholders.

To overcome these concerns, strive to build trust in cloud-based services. For example, some cloud services providers issue trust-based attestation reports assuring customers that their products and services have been thoroughly reviewed and certified by a third party. Addressing risk concerns early on provides an opportunity to build trust with customers and differentiate a company’s product and services.

4. Use cloud computing to advance ESG goals. Cloud computing can play an instrumental role in corporate efforts to achieve goals related to environmental, social and governance (ESG) issues. One-third of the PwC survey respondents said that they understand the impact of the cloud on governance aspects of ESG and they have implemented a plan to leverage the cloud to improve their ESG strategy and reporting.

Cloud computing can support companies’ ESG efforts in several different ways, including through cloud-based data management and reporting. This helps automate the reporting process while standardizing data and increasing transparency. Moving data to a third-party cloud service provider can also help reduce a company’s carbon footprint, since emissions from a data storage facility are usually considered scope 1 or scope 2 emissions.

Managing Finance and Accounting in the Cloud

Finance as a Service, or FaaS, has emerged a service offering with one of the most popular cloud applications today. With FaaS, all aspects of finance and accounting are managed by a third-party SOC 1 certified service provider.

Consero offers a fully managed software platform that’s equipped with pre-integrated, enterprise-grade finance and accounting software, featuring digital processes and workflows. This platform provides access to a comprehensive set of finance and accounting tools including:

  • Cloud accounting software
  • Customer invoicing and vendor billing
  • Employee expense approvals and payments
  • Statutory and management financial reporting
  • Task management and workflow software
  • Graphical metrics and KPIs

With Consero’s cloud-based finance and accounting solution, you can complete a full digital transformation in 30 to 90 days — much less time than it would take to build an in-house finance and accounting function.

To learn more about the benefits of FaaS and Consero’s integrated finance and accounting platform, please request your complimentary consultation today.

Talent Migration: Attract and Retain Skilled Finance & Accounting Talent

Attracting and retaining talent remains a huge challenge for businesses as the nation begins to emerge from the upheaval of the pandemic. According to the 21st edition of the EY Global Capital Confidence Barometer, six out of 10 middle-market companies say they face difficulty when it comes to finding and keeping skilled employees.

“The much-mooted threat to jobs from technology is not playing out as many had predicted,” states the EY report. “Indeed, as more jobs are automated in routine tasks, companies are finding it more difficult to attract and retain talent with the right technical and digital skills to benefit from these efficiencies.”

Pervasive Throughout All Industries

Talent acquisition and retention is the top concern among business leaders in 2022, according to a survey conducted by Protiviti and NC State University. “Most if not all of the organizations that we’re speaking with are struggling with things like attracting, retention, engagement, upskilling,” Protiviti Managing Director Fran Maxwell said during a recent webcast. “It’s pervasive throughout all industries, throughout all organizations now.”

Some employers are trying to attract and retain talent by boosting compensation. In November, hourly private sector wages rose 4.8%, according to the Department of Labor. And companies have budgeted 3.9% wage increases for this year, which is the biggest bump since 2008, according to the Conference Board. Unfortunately, these increases aren’t keeping pace with soaring inflation, which reached 7.9% in February, a four-decade high.

However, Maxwell notes that raising pay isn’t the only way to attract and retain talent. He recommends that businesses also make efforts to improve the employee experience — for example, by offering flexible or hybrid work arrangements, access to learning and development programs and creating a work atmosphere of well-being.

“Organizations that will win the talent war will focus on differentiating an employee experience, making it different for each employee,” said Maxwell.

Competing with Big Businesses for Talent

Large corporations have historically held the edge when it comes to brand marketing and employee recruiting. In the current environment, however, some middle-market firms are finding that they can compete with their bigger brethren by positioning themselves as an attractive alternative to large organizations.

One way to do this is to focus on the “power of purpose.” In the 2019 Mission and Culture Survey conducted by Glassdoor, eight out of 10 respondents said they consider a company’s mission and purpose before applying for a job there.

Purpose answers the questions: Why does your company do what you do? And for whom do you seek to create value? It’s often easier for middle-market companies to clearly articulate their purpose to employees and live it out authentically than it is for large corporations. Doing so

enhances the employer value proposition for employees, including highly skilled candidates looking for the right employer.

Another way middle-market companies are successfully competing for talent against large corporations is by offering employees accelerated career advancement opportunities. These companies often have more flexibility when it comes to things like giving employees earlier and more frequent client interaction, greater job responsibility and autonomy, more supervisory responsibility, and participation in strategic decision making.

More Middle-Market Advantages

With their agility, middle-market companies can also usually create flatter management structures. These tend to give employees more opportunities to interact with upper managers and move more freely between management layers throughout the company.

Embracing technology and creating a culture of innovation is yet another strategy middle-market companies can adopt to attract and retain talent. Large organizations are often slow to adopt the latest and greatest technologies, but nimble middle-market companies can usually implement technology and innovation more easily.

In the EY Global Capital Confidence Barometer survey, half of the respondents said they are leveraging technology and automation to improve workforce productivity. After watching so many innovation-driven startups quickly transform themselves into some of the world’s most valuable companies, many talented young employees now view organizations like this as attractive places to advance their careers.

Finance as a Service, or FaaS, can be a solution to finance department staffing challenges faced by many middle-market companies today. With FaaS, finance and accounting software and technology is managed by a third-party service provider. This includes recruiting, hiring, training, retaining and developing all finance and accounting team members. FaaS is a fully managed solution which gives executives more time to focus on strategic planning, analysis and forward-looking initiatives.

Questions to Ask

As you consider how your company can scale and compete successfully with large corporations for the best and brightest employees, ask yourself whether you’re really thinking about the mindset of the employees you want to attract. Also, do you know what factors give you a hiring edge over large organizations and are you capitalizing on them?

And perhaps most importantly, are you creating an exciting, dynamic corporate culture that embraces technology and innovation? These are the kinds of organizations most of the high-demand young employees today are looking for.

Could You Benefit from FaaS?

Could you be leveraging a third-party service provider to handle hiring and retention of your finance and accounting staff for you? Doing so could reduce the amount of time and resources you spend on tasks that take your focus away from growing the business.

To discuss the potential benefits of FaaS for your business in more detail, please request your complimentary consultation here.

Why Focusing Early on Due Diligence and Audit Preparedness is Critical to a Successful Exit

Owners and CEOs often don’t think about due diligence and audit preparedness during the early stages of the business startup. But maybe they should.

Research has indicated that between 90% and 95% of companies that receive seed funding don’t achieve a successful exit. This raises the question: What’s the difference between seed companies that achieve a successful exit — whether this is going public or some other type of exit — and those that don’t?

Of course, one of the biggest factors is achieving the right product-market fit. But another factor that isn’t talked about as much is an early focus and emphasis on due diligence and audit preparedness, especially as the company moves through the various stages of capital fundraising.

Growth Stages and Funding Milestones

Following are some of the key steps that should be taken from a due diligence and audit preparedness standpoint for each major growth stage and funding milestone. Note that there is more complexity at each milestone, requiring greater sophistication on the part of the financial management team.

Pre-seed to Seed:

• Build your financial system and organize financial files

• Implement financial controls

• Set up collections processes to maximize efficiency

Fundraising Series A:

• Financial modeling and long-range planning

• Fundraising project plan and investor presentation

• Series A fundraising overview, current trends and term sheets

Fundraising Series B:

• Financial metrics, benchmarking and data analytics

• Annual financial planning/forecasting and cash flow management

• Board financial reporting packages

• GAAP accounting and revenue recognition

Fundraising Series C:

• Financial guidance for strategic decisions

• Merger and acquisition assistance (if needed)

• Board/investor presentations

• Potential international expansion

“The key is to maintain funding readiness throughout each of these stages,” says Jason Burke with Consero. “This should always be top of mind for seed companies. For example, make sure compliance is up to date, financial records are maintained and documentation is prepared so when opportunity arises, you’re ready to take advantage of it,” he notes. 

Get Started Early

Jason stresses that due diligence and audit preparedness should begin on day one of the startup. “It’s never too early to get started,” he says. “You’re going to need a lot of supporting information to back the numbers in your financial statements.”

He lists the following due diligence and audit preparedness steps:

• Gather formation documents such as articles of incorporation, bylaws and shareholder agreements.

• Identify and build relationships with professional service providers including a CPA, banker, attorney, insurance broker and industry-specific consultants.

ª Gather such information as internal control narratives and a summary of related party transactions.

• Prepare revenue and gross profit projections by product offering.

• Obtain audited financial statements for the last two years, or three years for a public company buyer.

• Consult with an audit firm about complex accounting requirements.

“It’s important to maintain your own financial documents and not rely on your CPA firm for this,” says Jason. “If you switch firms, important data that substantiates a tax position could be lost.”

Jason also stresses the importance of keeping financial statements in good order and maintaining adequate internal controls at all times. “Failure to do so can lead to numerous problems when it’s time to exit the business, not to mention higher taxes,” he says.

Your Finance and Accounting Team

Building a strong finance and accounting team is critical to proper due diligence and audit preparedness. This can be done internally or on an outsourced basis, which tends to be more common among seed startups.

Consero can help you build the finance and accounting team you need to assure adequate due diligence and audit preparedness. Contact us today and schedule a complimentary consultation. 

How to Manage Your Board Relations More Effectively

As a CFO, your corporate board of directors is one of your most important constituencies. Therefore, it’s critical to manage board relations carefully and strategically and to make sure that you and your CEO are aligned on your approach and your respective roles.

This starts with understanding the unique interests of each of the individual members, knowing their data needs, and determining who should be communicating with which board member and on what cadence, says Consero’s CFO and COO, Mike Dansby. “This will enable board members to most effectively support and govern the company,” says Dansby. “And it will lessen the chance that there are unmet board member expectations on the part of your company.”

The Makeup of Your Board

Managing board relations effectively starts with achieving the right makeup for your board. In smaller organizations, the board might consist of just investors and the founders. But as businesses grow, the makeup of their board should evolve as well.  For instance, “independent” board members may be added to bring specific industry, product or functional expertise to the board.  Additionally, with growth the board will evolve and form committees.  Quite often, someone with deep financial expertise is added to chair the audit committee.

Over time, conflicts can sometimes arise based on how the board makeup is structured. Consider a venture capital-backed business with both early- and late-stage investors. The early-stage investors might not be as patient as time passes and might prefer a quick sale to generate liquidity whereas late-stage investors may be more willing to take a long-term view of the business.

“I have seen this scenario play out many times,” says Dansby. “It can be avoided by carefully managing the makeup of your board to achieve a balanced representation of shareholders, management and independent directors. Also, the company should pay close attention to the voting rights and preferences given to each series of shareholder to understand if decision making is balanced or loaded in favor of a particular shareholder class.”

Communicating with Your Board

Another key to effective board relations is knowing how to communicate with board members in the language they want to hear. For example, a business that’s backed by venture capitalists most often operates at a loss. In this scenario, the VC board members will be primarily interested in the progress of bookings growth and how to use cash flow to help drive growth, not in things like marketing and expense management. 

“There’s no need to go over a detailed P&L statement with them or talk about expense reduction,” says Dansby. “Instead, spend your time with them focusing on sales, revenue and cash flow.”

On the other hand, a business that’s owned by private equity investors is probably more established. The PE board members will likely be most interested in ways to boost efficiency and cash flow in order to service debt, as well as adherence to loan covenants. If debt is minimal, they will probably be interested in expense management and what types of investments are needed to grow the business. 

“Private equity owners tend to demand more data and perhaps be more hands-on with the business,” says Dansby. “Sometimes this requires a little more patience on the part of CFOs.”

Organizing and Facilitating the Meeting

According to Dansby, it’s important to choose a consistent format and agenda for your board meetings so members know what to expect. “Have a consistent flow to your meetings and a consistent set of metrics so they have a similar experience and get the same view every time,” he says.

For example, you might get routine business matters out of the way up front, like approving stock options. Next, you could cover the executive summary and key strategic initiatives. Then you can spend the rest of the time focusing on the things that are important to your board members, as discussed above.

Dansby recommends preparing the board deck and distributing it to board members several days in advance so they can review it and be better prepared. Get consensus early on as to key metrics and analytics for the business and stick to those.  Relegate the GAAP financials to the appendix as most boards prefer to look at some version of an adjusted EBITDA analysis.

The hardest aspect of keeping board members up to speed might involve translating complex financial data into actionable insights. “Board members might be unfamiliar with financial concepts that CFOs analyze regularly and confused by accounting jargon,” says Dansby. “Therefore, it’s important to keep reports simple and make sure they’re timely, consistent and concise.”

The CFO’s Role in the Meeting

At times CFOs might feel like a stick in the mud when they have to follow the CEO at a board meeting. The CEO is the optimist who talks about big-picture strategy and headline numbers, and then the CFO has to explain what the numbers mean, how the company can achieve them, and perhaps a dose of reality to the discussion. 

“Sometimes CFOs even need to reign CEOs in a little bit,” says Dansby. “But a board meeting isn’t the right time or place for open disagreements or to challenge the CEO. Instead, be adaptable and explain to the board what assumptions need to be met for the company to achieve the CEO’s vision and goals.”

If you have more questions about managing your corporate board more effectively, request a complimentary consultation.

How FaaS Can Help You Win the War for Talent

The phrase “war for talent” was coined by McKinsey & Co. in the late 1990s to describe an environment where competition among employers for skilled workers was becoming more intense as the workforce began aging and employees exhibited less loyalty to the companies they worked for. 

This so-called war has only intensified since then. The demographic and societal trends that started more than two decades ago have continued with baby boomers starting to retire in droves and highly skilled employees hopping from job to job as new opportunities arise. COVID-19 has also played a large role in the upheaval of the workforce as both businesses and employees adjust to new ways of working due to the pandemic.

In fact, one out of every four employees say they plan to change jobs once the pandemic subsides, according to the Pulse of the American Worker Survey conducted last spring by Prudential. 

Challenges in Accounting and Finance

The war for talent can be even more intense in the finance and accounting industry. Highly skilled finance and accounting employees can often pick and choose from among the best jobs, which makes it hard for corporations and CFOs to build and maintain a stable finance and accounting staff.

The good news is that building such a staff isn’t always necessary anymore. Instead, businesses can utilize Finance as a Service, or FaaS, to meet their finance and accounting requirements. With FaaS, the finance and accounting back-office duties are outsourced to a third-party service provider. This relieves the CEO or CFO of the difficult, expensive and time-consuming job of hiring and retaining a full-time finance and accounting staff.

FaaS: A Comprehensive Approach to the Finance Function

Finance as a Service is sometimes confused with the services provided by outsourced accounting firms. However, FaaS offers a much more comprehensive approach to financial and accounting management than simple outsourced accounting, along with greater transparency and rigor.

First, FaaS provides a full suite of staff, services and software that’s capable of managing a corporation’s entire finance and accounting operations. This includes processing transactions and customer payments, paying vendors and producing monthly financials. In other words, FaaS is a one-stop financial and accounting services shop. 

FaaS also offers a single, self-serve software interface instead of multiple programs that corporations have to manage themselves. This interface should provide clarity and transparency with regard to financial and accounting information. With FaaS, knowledge isn’t concentrated with a single individual who is the only one who can access relevant financial and accounting data. Instead, this data can be easily accessed by anyone on the team when needed. With a single, self-service interface, more than one person can get that system to meet their needs on any given day.

In addition, FaaS features flexible and transparent pricing which makes it easy to forecast what costs will be as the company’s needs change in the future. Practically speaking, this means that a FaaS provider charges based on the service offered, not by the hour or based on the level of staff assigned to the client. This way, corporations know exactly what they’re paying for and how their costs will rise or fall as they scale up or down

Finally, FaaS offers access to skilled finance and accounting professionals who have the appropriate level of expertise for the corporation’s specific needs. While much of financial operations is fairly straightforward, sometimes corporations need a higher level of strategic thinking and expertise, like when performing acquisitions and onboarding new entities, for example. With FaaS, corporations only pay for this higher level of service when it’s needed. 

FaaS Service Brings Everything Together

In the end, Finance as a Service comes down to one word: service. This is what brings together the comprehensive offering, single self-serve interface, pricing transparency and customized level of expertise. A true FaaS provider will offer this kind of comprehensive approach to managing the finance and accounting function.

As a CEO, now would be a good time to think about how adopting Finance as a Service could help you win the war for talent. To discuss the potential benefits of FaaS for your business in more detail, please connect with us here

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The Benefits of FaaS for Professional Service Firms

The Benefits of FaaS for Professional Service Firms

Finance as a Service (FaaS) is quickly becoming one of the most popular ways for Professional Service firms to save money. Professional Services organizations, such as Marketing & Advertising, Business Consulting, Educational Services and Wellness & Healthcare can use FaaS to eliminate the need for costly in-house technical staff while still having access to all the benefits of these services.

The following article will discuss what FaaS are and how they work, along with some of their key benefits.

What Is Finance as a Service?

Finance as a Service (FaaS) is a type of agile service delivery model. It makes use of the best finance operation management practices by leveraging some of the most advanced technologies. These include things such as Artificial Intelligence, Machine Learning, cloud computing, automation, and more.

The Professional Service industry has grown by leaps and bounds in recent years. This is because it provides a wide range of services that are valuable to many organizations, including but not limited to marketing & advertising, business consulting, education service and health & wellness to name just a few.

Organizations are grappling with the challenges of high operational costs and low margins. This is causing some to move away from product development and focus on services only to compensate for this challenging business climate that they are facing.

Finance as a Service (FaaS) offers Professional Services organizations the opportunity to grow their business while reducing operational costs and increasing margins through automation, increased scalability, cost savings, and more.

The Benefits of FaaS for Professional Service Firms

Partnering with outsourced finance and accounting service providers creates tangible benefits for companies and intangible benefits for business owners. FaaS can help those in the Professional Service sector by providing benefits like cost savings, scalability, financial visibility, CFO assistance, and more.

Cost Saving

One of the most apparent benefits of FaaS is in terms of cost savings. Professional service firms are all about delivering a high-quality product. But to do this, they need to invest in their people and infrastructure. FaaS helps these companies spend less on the finance & accounting department by outsourcing back-office functions such as processing accounts receivable, accounts payable, and utilizing enterprise-grade finance & accounting software. 

Cost savings come about via multiple processes that FaaS can provide. Among these, we can include things such as:

  • Automating many manual and repetitive processes.
  • FaaS providers can customize and address their clients’ unique needs, determining the best processes to tackle their needs.
  • Increased financial reporting capabilities.
  • FaaS providers also have trained and skilled finance experts that their clients can leverage.

When companies don’t have a CFO, they’re always left without actionable financial reports and analytics. In simpler terms – without better reports or data, the business can be difficult to maintain, let alone grow and expand.

This also enables businesses to understand the financial health of their company, which is used to make better decisions for business needs. Organizations in the professional service sector will feel a sense of relief when they use a Finance as a Service provider. With these providers, companies can benefit from enterprise-level finance software that allows an organization to save time and engage with data and reporting for better understanding.

Easy Scalability

FaaS providers are structured for specific tasks and provide the right level of resource accordingly. FaaS providers can jump in and help quickly, allowing your company to be more scalable (having a higher capacity) than it would be with an in-house department.

Finance as a Service helps streamline scalability by providing the resources and tools necessary to operate your Professional Service business. FaaS providers help you avoid understaffing or overstaffing, which can lead to unnecessary costs.

The benefits of scalability include being able to accommodate new opportunities quickly as they arise without having any significant setbacks in other areas of your Professional Service company.

CFO Support

FaaS can provide CFO assistance to Professional Service organizations. Many Professional Services firms are structured in such a way that there is no one person with the primary responsibility for financial management and operations, which often leads to what we call “spreadsheet hell” or lack of focus on numbers. There may be several people managing spreadsheets because they don’t have time to do it themselves or nobody wants all the overhead involved with being responsible for accounting and other complex tasks like reporting.

This means that many Professional Services organizations miss out on opportunities when it comes to financial visibility, risk analysis, cost control, etc., without realizing any benefit from their analytics efforts – both financially and operationally speaking.

In contrast, FaaS service providers can assist by providing Professional Service organizations with the information they need to make critical decisions. Professional Services organizations that outsource their Finance as a Service will benefit from improved financial visibility, reduced risk of financial penalties due to missed deadlines, and lower costs required for IT infrastructure maintenance.

Finance as a Service enables companies engaged in the professional service industry to save money, manage finances better, and more. Consider Consero for CFO support – an expert financial advisor who can help provide advice on your expenses.

The FaaS model is appealing for many service providers because it reduces repetitive tasks, freeing up time and resources to focus on the data. A CFO provides perspective and helps you focus on the growth of your business.

Increased Financial Visibility

When using paper-based systems and collecting their data in spreadsheets, professional service organizations set themselves up for all sorts of human errors and time-consuming tasks. The result is often a lack of visibility into the organization’s financial performance.

Professional service organizations can use FaaS solutions to make their business more efficient by automating back-office operations, providing better tools and reports for managing finances, and decreasing time spent on data entry.

Professional services providers can access real-time reporting without paying for expensive subscriptions or hiring staff members with extensive IT experience.

The FaaS model facilitates a clear view of the future and present-day challenges offered by easy-to-read reports. Improved financial visibility will help companies by:

  • Providing a bird’s eye view over cash flow and current financial position.
  • Tracking ongoing account profitability and customer acquisition costs.
  • Demonstrate performance gains to potential investors.
  • Identify errors and potential fraud faster.
  • Better utilize your current and future investment capabilities to make better financial decisions.
  • Evaluate service lines in real-time.

With a bird’ eye view of your company’s performance, you can better mitigate risks and future-proof your strategy. With financial visibility to ensure all data is connected, you’ll be able to zoom in on the details as well.

Otherwise, depending on data stored in multiple disconnected systems prevents you from getting a view of unified information, which is crucial for making decisive decisions.

CEOs of Professional Service organizations usually bring business decisions without seeing what is happening across the entire business. Better financial visibility is vital in understanding and managing the organization’s progress better. As a result, they are less successful than companies with employees who can offer support, such as Finance as a Service (FaaS).

Faster Optimization

Finance as a Service can help Professional Services firms and account for their operations more quickly. This is because FaaS eliminates the need to manually input data, which speeds up processes that typically take hours or days by reducing them down to minutes or seconds.

Financial visibility of transactions in real-time allows Professional Services firms to adjust pricing models on the fly with increased accuracy, making it easier for clients to predict what they will be charged in any given scenario.

Professional Services companies can focus on developing new services rather than spending valuable resources worrying about reconciling invoices and payments from providers who charge hourly rates, etcetera.

When it comes to a company’s problems in finance and accounting, they often follow the same procedure – looking for an organization that researches systems and then picks one that fits their needs best. Next, they configure the system and implement it. This process takes longer to complete because most organizations need 18-24 months to optimize their finance function. One of the leading challenges that Professional Service organizations face is time management. They need to dedicate a lot of time and energy to get their systems up to date, which takes away from managing daily operations and provides less time for core functions.

The FaaS model is perfect for finance teams looking to spend less and get going faster. With the FaaS solution, in 60 days or less, you can:

  • Optimize your finance function more cost-effectively than with an in-house department.
  • Save time upfront as well as long-term time spent on business growth initiatives.
  • Get access to resources like tax experienced CFOs, FP&A experts, controllers, and more to see a #1 differentiator from our competitors.

Increase Efficiency and Reduce Fraud

In a company growing in size, trying to stay productive and accurate using paper-based or excel-driven workflows while maintaining control over everything can be challenging. Fraud and error-prone manual input by staff is a significant risk. Instead of spending their time on value-adding activities, they waste their time undertaking manual tasks that result in errors.

By integrating financial management systems, FaaS offers help with tasks such as reducing duplicated listings and repetitive actions.

A consolidated financial platform that unifies all your data and eliminates paper-based processes will improve financial reporting, expedite collections, and reduce the chance of fraud. Furthermore, segregated duties and critical performance metrics are supported by integrated financial management, which leaves your staff with more time to focus on their core tasks.

Conclusion

Finance as a Service can provide plenty of benefits to Professional Service organizations that use them. Professional Services organizations that use FaaS can lower their costs, provide scalability and financial visibility to make the decision-making process easier for CFOs, and receive assistance from a qualified professional in finance.

FaaS is also flexible and provides more control over finances than traditional accounting systems. Professional service firms can spend less time on administrative tasks thanks to Finance as a Service. They eliminate the need for manual data entry, work cycle delays caused by waiting for accounts payable or payroll department approvals, and any other variables which lead to lost productivity hours spent on compliance issues related to bookkeeping.

The Changing Role of CFOs in Professional Services

The Changing Role of CFOs in Professional Services

In today’s highly volatile and uncertain business environment, technology has also played its part in the overall disturbance. The rise of cloud computing and automation has changed the finance leader role in surprising and unexpected ways.

CFOs have always had an important role in C-level decision-making, but now they also play a pivotal role as partners and problem-solvers for their client organizations.

The CFO’s new responsibilities include being the chief customer advocate, understanding customers’ challenges and opportunities better than any other person on the C-suite executive team.

The CFO is a C-level executive who has traditionally been in charge of running financial operations for the organization. Historically, this meant they were primarily focused on ensuring the company had the funds necessary to operate and grow. With cloud technology becoming more prevalent, CFOs have shifted their focus from managing the budget to leading decisions around critical strategic questions: What does it cost? What should we invest in next? Who are our customers? How do we make them happy enough to give us their business again and again?”

Below we will be looking at how the roles of finance leaders in the professional service sector have changed and what CFOs need to do to succeed in this new environment.

The Finance Department’s Shift Towards The Customer

Unlike the manufacturing sector, where product defects can be immediately identified and repaired, the professional service sector faces more unique customer challenges. Since true service quality is only proven later in the customer cycle, it will only initially be based on the service provider’s initial reputation and overall trustworthiness.

Professional service firms have historically focused on promoting “expertise” to win the trust and reputation of their customers. Statistics show that around 46% of executives point towards “expertise” as the main differentiation amongst the competition.

But as agile, customer-centric competitors seek to challenge established businesses, expertise alone is not enough. Professionals have also expressed great anxiety over these new customer expectations.

Customers now demand more value, a better quality of work, and an increased speed of service delivery. This is thanks to the technological improvements that allow for less human input.

The CFOs in organizations must find solutions that are both effective but also maximize customer satisfaction through transparency and accountability – all while not slowing down on their current responsibilities.

Also, according to the study above, “customer loyalty and advocacy will increasingly become the one true way to stand out from the competition. The research clearly finds that a new basis of competition is arising. Incumbents must evolve, or risk losing business to more nimble firms with innovative business models.”

In other words, decision-makers at professional service firms need a better understanding of how to delight customers than in the past. This change has transformed the expectations of CFOs and the finance function. One study has also shown that nearly 2/3 of CFOs feel substantial pressure to change their team’s mindsets to become more customer-centric.

Similarly, some 64% of customers, who are better informed and more tech-savvy, expect that companies respond and interact with them in real-time. CFOs are more likely to get involved in the decision-making process regarding product and service pricing.

How Automation and Cloud Computing Influence the Finance Function

Cloud computing has dramatically influenced the CFO role, as CFOs can now take advantage of new opportunities through cloud services such as business intelligence software and automation tools to free up time for strategic decision-making and customer-facing roles.

CFOs are increasingly required to make strategic decisions to anticipate and better react to the market conditions, consumer behavior, regulatory change, etc., which has traditionally been more of a CEO’s role.

The CFOs also have responsibility for understanding the customer and ensuring that they are happy with their experience while doing business with the organization, which was not traditionally a CFO function.

Aside from direct customer expectations, today’s cloud and mobile technologies have directly impacted the daily finance function operations. CFOs are typically responsible for financial reporting, forecasting, budgeting, taxes, and regulatory change investment decisions.

CFOs also have a critical role in managing the company’s IT infrastructure: servers, storage systems/warehouse management, and the company’s IT department. And because of this connection, CFOs are also expected to reach beyond their core capabilities. This ranges from finding new ways to developing revenue streams to adopting new metrics by which you measure success.

Aside from that, other areas of concern include billing, cash flow management, and expenses. In addition to their increased workload, finance leaders also need to focus on talent acquisition and management.

With increasingly automated and AI-empowered Cloud technologies, finance professionals are now expected to have more data-driven skills than task-based ones.

How Professional Service CFOs Succeed?

The most effective managers in professional service organizations are those with the ability to combine strategic vision and change management skills. As the CFO has become increasingly decision-oriented, they have been able to better anticipate and react to trends. Unfortunately, not all finance leaders are able to take on this role.

Common reasons for this include:

  • Risk Adversity – A major responsibility of the CFO, in many organizations, is risk management. When dealing with mature outdated infrastructures and processes, this can lead to a myopic focus on problems instead of broader possibilities.
  • Limited Strategic Leadership Skills – Professional service companies traditionally promote people based on leadership qualities such as who has been with the company for the longest or who has billed a large number of hours. These qualities do not always translate well to effective leadership, especially in challenging times.
  • Limited Resource or Energy to Manage New Demands – Accounting leaders already spend a significant proportion of their time overseeing the implementation of organizational projects and managing expectations from other leadership teams. This leaves CFOs with less of a chance to handle additional demands on their time.

To succeed in a changing industry, successful CFOs need to do the following:

Embrace the Digital Transformation

The CFO has the potential to be a driving force in helping organizations embrace digital transformation and drive success. They have access to all of the data that is needed and knowledge about how best to use it for successful decisions.

CFOs are also key ambassadors between external stakeholders such as customers, investors or partners, internal C-level executives, owners, and other stakeholders. CFOs can play a critical role in the success of an organization by balancing financial objectives with innovation and customer-centricity.

Top areas to focus on include:

  • Using intelligent real-time technology to build a better customer relationship. This helps the CFO understand what is important to customers and then make these changes in their products.
  • Encourage safe spaces across the organization for experimentation and creative thinking to help talent-scarce SMEs develop the full potential of talented individuals.
  • With cloud technology and automation, the role of a modern finance leader has shifted. They now take more direct actions to help incorporate customer feedback, such as listening to different departments and synthesizing that knowledge with the customer’s needs, expectations, and pain points.

Investing In The Right Digital Tools

CFOs should also look towards the right tools capable of automating their daily routine processes and allowing them to focus on customer relationships. CFOs should be looking for the right tools that will make their work easier and more efficient and cut costs in the form of time or money. CFOs need to invest in new technologies if they are not already doing so.

One such tool is Consero SIMPL. Designed specifically for CFOs, executives, managers, and other department heads, SIMPL is a cloud-based one-stop platform for all financial needs. CFOs can run their entire company from this software, including reporting and all aspects of financial management. CFOs will be able to cut costs on paper now that they have the right tools for automating processes, as well as streamlining tasks and projects with a single-source system.

Among the features of this platform, we can include:

This CFO software can be integrated with other business applications such as project management, accounting, and time tracking. CFOs will also be able to access client information in real-time, which allows for better customer service and quicker decision-making.

CFOs are no longer the behind-the-scenes managers of a company’s finances – they are critical players in the organization’s overall success. CFOs are often the most knowledgeable about all aspects of a company’s finances and have access to essential data points when making decisions.

Cloud CFO software empowers CFOs with an easy-to-use platform that allows them to make more informed decisions, provide better customer service, and manage their organization in ways they never could.