When a business has emerged from the “Start-up” stage but is still far from reaching its full potential, it is in the growth stage. The systems, service providers, policies and procedures that were established in the start-up stage may no longer fit and probably need to be upgraded. New financing options not available to start-ups may now be available. With the changing cost of debt, strategic opportunities that were passed on in the start-up stage may start to look more attractive. Risks that were deemed acceptable or safeguards that were too costly at the start-up stage need to be addressed now that there is more to lose.
Cash is king at this stage because working capital needs tend to grow as quickly or even faster than operating cash flow and profits need to be reinvested into the business. Many founders in this stage ask, “If my business is so successful, why am I not getting rich?” The answer may well be they are getting rich, but their newfound wealth is tied up in the business and they will not truly reap the benefits until the growth rate starts to level off or they sell a share of their equity in the company. It can be particularly challenging to convince the owners to make the investments needed to mitigate risks when they are still not personally drawing large checks from the business themselves. After all, they made it this far without them, and if they were particularly risk averse, they probably would not have started the company in the first place. Still, the CFO needs to consider risk management one of their top priorities and make progress when and where they can.
For companies that made it to this stage without the benefit of strong financial leadership who are now looking to hire their first CFO, the incoming CFO’s task will be particularly challenging and will require an ‘agent of change’ rather than someone who is more suited to maintaining the status quo. It may benefit the company to bring in an interim CFO to clean up the books and address the problem areas to make the job more appealing to permanent CFO candidates. This will also allow the permanent CFO to get off to a good start without getting bogged down in a swamp of issues.