With a new investee business in your portfolio, accelerating business development and growth is the priority. However in-house finance teams are likely to feel the pressure – as they face new challenges supporting the delivery of a 100-day post-transaction plan.
What are the common pain-points facing finance teams post VC fundraise?
If this is the management team and finance function’s first experience of working with VC or external investors, the experience may come as a bit of a culture shock. For example, they may not be used to procedures around board meetings and the increased formality of reporting timetables.
"It’s also likely that their finance function is unprepared for the new financial and management reporting requirements that come with VC investment. They may need, for example, to produce information in tighter timeframes or in new formats and to respond to ad hoc requests for information."
These additional reporting necessities will come on top of an already heightened requirement to monitor performance against budgets and forecasts.
All these factors can increase pressure on in-house finance teams – as well as founders and other key personnel who may traditionally have played a substantial role in pulling the financials together.
Which areas should your investee business prioritise in the first 100 days?
Optimisation of finance and accounting technology
Underlying finance and accounting technology systems need to be fit for purpose and able to support increased demands for information. In-house finance staff may be required to interrogate data in many different ways and provide additional commentary and analysis.
Where pinch points have been identified, these can often be mitigated by simply making optimal use of existing system functionality or leveraging bolt-on solutions. What’s certain is that immediately implementing completely new finance and accounting systems should be avoided in the post-transaction period, as this is likely to be extremely time consuming and would divert finance team resources away from other strategic activities linked to supporting rapid business growth.
Financial reporting requirements
Finance teams in investee businesses will encounter increased pressure to ensure the numbers reported are accurate.
"As a VC investor, you need to know you can rely on the financial information you receive, so it’s important to ensure that in-house finance teams have the skillset and resource at their disposal to produce high quality financial reports within expected timeframes."
Reporting progress on KPIs and real time management information
The volume of information requests received by finance will likely increase, as will regular management information reporting requirements. Additional requirements for cashflow forecasts and budgets – with regular variance reports will become a bigger factor in understanding the future performance of the business.
Finance teams will need enough resource and expertise to be able to respond quickly and effectively, providing accurate information. Lead times may be short.
"How can you bulk out the resource available to your investee business’ finance team, whilst keeping their overheads low?"
As a VC fund, the KPIs you consider most important for monitoring the performance of your portfolio company may not necessarily be the same as any KPIs finance teams have been producing previously. It’s therefore vital that finance teams know what KPIs they need to be monitoring and that they have the technology and processes in place to accurately report on them.
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Making the most of professional advisers to unblock barriers to growth
Pre VC investment, many founders play a substantial role in producing financial information, but this is unlikely to be the best use of their time as the business continues to scale. Turning to expert external professional support could free up business leaders to focus on delivering the business plan in line with targets.
Members of your investee’s finance team are likely to be stretched by the additional demands being made of them. They may need additional resource, whether through a permanent increase in headcount, using a temporary subcontractor or turning to an outsourced service provider.
It’s vital to ensure the right finance support and resource is in place for the right size of business.
"A finance team that was perfectly suited to a small business in its development phase may no longer be appropriate once the business closes a funding round and begins scaling rapidly."
The internal expertise and experience may no longer be sufficient to manage a range of issues covering technical accounting, management information, financial planning and analysis and financial reporting.
Have you unlocked the benefits of outsourcing?
Outsourcing some or all finance activities could ensure that your portfolio company’s finance team has the expertise to meet changing demands and the flexibility to respond as the business grows. Outsourced service provision can be extremely flexible and tailored to individual business needs – ranging from year-end statutory compliance support, picking up the burden of running your monthly payroll through to the provision of a full back office finance function.
Alongside outsourcing the burden of back office functions, many investee businesses benefit from having an external, expert monthly review of the latest management information and KPIs – performed by an adviser who understands the drivers of business growth and can provide valuable insights into divergences between budget and actual results and any emerging trends. It can be reassuring to have an experienced professional regularly ‘kicking the tyres’.
"Whatever solution is preferred, an outsourced service provider will act as an extension of an investee business’ existing resources – working as part of the same team."
Outsourcing aside, professional advisers may also be able to provide a secondee to support a finance team in the post-transaction period – a professional with experience of growing businesses. Where necessary, such an individual can help to professionalise the finance team and embed a high-performance culture.
A good advisor will also help investee businesses to an eye on their future accounting technology stack and to work with them and you to ensure that a switch to a more complex system is implemented at the optimum time, using their breadth of experience to ensure that the right system is selected.
Professional advisers in general can provide a valuable sounding board for discussing a wide range of issues, including technical accounting queries, systems optimisation opportunities and management information improvements – all aimed at helping finance teams, investee businesses and VC investors meet their 100-day goals.
Contact Andy Huddleston for further information on how an outsourced approach can best support your portfolio companies’ 100 day post transaction plan and beyond.
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Maximising productivity from your finance function
If you’re looking for further insights into ways to leverage technology and maximise productivity within your finance function, visit our ‘Rethinking the Finance Function of the Future’ hub.
RETHINKING THE FINANCE FUNCTION OF THE FUTURE
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