Financial Planning for Scaleups
For a scaleup business, having a clear financial plan and the processes in place to manage rapid growth can make or break a company. Comprehensive forecasts and future planning that clearly outlines how the business will reach its financial objectives and realise its vision make all the difference when scaling at pace.
This guide will provide a comprehensive overview of the financial planning and the analysis process, focusing particularly on why it is so important for businesses looking to spark a period of accelerated business growth. It will also provide plenty of useful tips and advice along the way.
The benefits of financial planning
High-growth businesses typically begin as entrepreneur-led entities where the founder wears many hats spanning product development, marketing, sales, team management and finance. The finance function in the earlier stages of a business’ lifecycle is often limited to basic bookkeeping and an external accountant to file annual accounts. With the ambitious growth targets and larger operational requirements faced by scaleups, things like cash flow management, spending control and oversight, driving efficiencies and longer-term forecasting become key areas that require active management.
Financial planning, like any kind of well-informed business planning, is key in creating a medium to long-term strategy for a growing company. But more than that, so many of the issues that scaleup businesses encounter as they grow in terms of revenue targets, company spending and business operations, can be traced back to finance.
For example, staff cost money. A business looking to hire new staff to service more customers needs to have visibility over the costs of new hires and the anticipated commercial returns from those hires. Having a clear view of projected revenue increases, payment schedules, as well as when outgoings are due can help to manage cash flow successfully and reduce the need for incurring debt via credit or external lending.
Financial planning can be the safety net that ensures that many compromising business situations never come to pass. The financial planning function can be a source of competitive advantage in its own right through a focus on increasing efficiencies, freeing up capital, and finding opportunities for further growth. Moreover, early financial planning and a longer-term vision of business cash flow, strategy and targets can have numerous other advantages.
The most universal advantage to financial planning while scaling up is that it can make saving at an early stage much easier.
Working a proper savings strategy into day-to-day financial activities before, during and after scaling a business encourages good habits and ensures that a steady stream of money goes into the accounts. As this money is separate from expenses and overheads, it can act as a welcome rainy day fund for when cash flow isn’t so forthcoming, or sit and accrue interest for later use.
People like businesses who have a plan. This is true of everyone from investors to potential financial lenders. It shows the people who are most important in funding, fueling and enabling accelerated business growth that a company has a vision and a clear idea of how to execute it. This counts for a lot, particularly among the following key groups.
Presenting a proper financial strategy can be the difference between retaining talent and losing some of your best team members, who can prove invaluable during a period of business growth.
It shows staff that there are goals and processes in place. But more than that, it offers a tangible sense of security that the company is looking after its finances and, by extension, their staff’s salaries, pensions and benefits.
Similarly, one of the key business demographics who go through these periods of accelerated growth are startups, or other similar companies with an equity-based business structure who require outside investment to fulfil their vision.
Securing these funds will often involve pitching to private investors or venture capital (VC) firms, who are rarely happy to make an offer of investment without evidence of long-term financial planning.
A detailed long-term financial investment plan can be the factor that gets potential investors on side and, more importantly, secures the funds required. A business who can accurately and authoritatively forecast the level of capital return that an investor can expect to see and over what time period stands a much greater chance of securing funding.
But even further than that, presenting a proper financial plan in this context is almost an audition. ‘Have they thought about everything? Have they worked in contingencies? Where will all of the money be used, should they secure the funds?’ Producing a plan which takes all of these factors into account and shows a proper understanding of the scaleup business process helps a fundraiser stand out in a crowded marketplace.
Proper financial planning and forecasting shows not only that a business owner has done their homework but also shows the person on the other side of the table, whom they may be asking for a serious amount of money, that they mean business.
Investors aren’t the only source of funding for businesses who are looking to scale up. Traditional business lenders represent a valuable source of borrowing for thousands of businesses across the country, usually in the form of ‘small business loans’. This type of loan can range from £1,000 to sometimes as high as £500,000.
When a business applies for a loan, lenders will require reassurances that the company will use these funds in a way which enables them to repay their loan in full and on time. This will inevitably include some form of credit check, but a full financial plan is also important to business loan lenders.
Putting together an effective, efficient financial plan does not only make the repayment process easier, it also reassures the lender that the business will hold up its end of the bargain.
Provide peace of mind
According to research from the University of California, San Francisco, entrepreneurs are 50% more likely to have mental health conditions like depression, ADHD, substance abuse, bipolar disorder, and suicidal thoughts.
Stress is a tangible problem among business owners. Even more concerningly, the pressure can increase exponentially when the scope and size of a company grows or an entrepreneur accepts a large amount of funding from a third party.
While stress in business is sometimes unavoidable, there are ways of managing and mitigating that stress. One of the most effective ways is planning. Setting out a clear vision for how the business will keep moving forward, whatever unforeseen problems may emerge, can provide a valuable pressure valve during the scaling process.
After all, at its core, it’s money that keeps a business moving forward. It is what pays staff wages, business expenses and, ultimately, fuels growth. Ensuring there are systems in place to stop finances from being stretched too far can ease worry and anxiety across multiple areas of a business.
Set achievable goals
In its most basic form, financial planning offers a solid base for the rest of the company to perform.
According to BrightPlan, financial planners are 18% more likely to achieve their goals than non-planners. With the financial resources in place to fund necessary activity and achieve goals, alongside a clear vision of where the company is and where it is headed, targets become clearer and more achievable.
Financial planning is much more than a safety net. It can also be a guiding light that helps show the team the path to achieving their goals.
Financial planning for scaleups and SMBs
As we have seen, the scaling up period in the life of an SMB comes with new challenges and financial pressures. So which of these hurdles can proper financial planning help a company overcome?
Short to medium term benefits
One of the obvious benefits of long-term financial planning is that it allows companies to fulfil new projects and expand its scope in the short-to-medium term.
For example, say a small bakery was to receive an order from an existing customer for 1,000 loaves of bread when their usual order is just 100 loaves. There is a serious opportunity for the baker to make a strong profit. The knock-on effect could be that this bakery becomes the customer’s preferred supplier and their orders only get larger.
However, the problem often arises that the company in the bakery’s position physically can’t fulfil the order in time or to the standard required with its current business resources and setup. As a result, they need to hire more staff, order more ingredients and factor in scaled-up delivery, refrigeration and equipment costs, all of which cost money
This is where financial planning can help. A baker who has been saving funds for a while and earmarking those funds for business growth is in a much better position to expand and take on new, larger orders. In the short term, the business owner can dip into these savings to hire new employees or short-term staff and increase their ingredients in order to cover the new business requests.
Once these initial larger orders are fulfilled, the increased cash flow from these new, larger orders means that the company can grow in line with its new orders and recoup its initial investment. Financial planning has not only helped this bakery in providing the funds for the short-term scaling-up process but been the critical enabler of increasing the capacity necessary for growth.
Applied properly, this financial planning approach needn’t rely on business borrowing or place excessive strain on the company bank account.
Unsurprisingly, long-term growth requires a long-term plan.
There is much more to financial planning than simply making sure the business is paid on time and that there’s cash in the bank.
Any SMB or scaleup looking to grow exponentially, whether that’s setting up nationwide branches or going global, needs to have comprehensive structures in place before they can effectively do this. Pension laws differ from country to country, taxation is entirely different across borders, and a single expense account can be an administrative nightmare if 80 staff from five local offices are dipping into it every day.
Implementing long-term strategies that scale as the business scales can ensure that a business owner needn’t run into any of these avoidable financial headaches.
When to start financial planning
Financial planning in its most basic form should start with the birth of the business. Saving, mapping out expenses for the month ahead and running payroll are all types of financial planning.
But focussing on the scaling up period, there are a number of key moments in the process where financial planning can help ensure a smooth transition from comfortable small business to larger operation:
- Hiring new staff
- Moving to a new location or adding new locations (e.g. offices, warehouses or factories)
- Moving into new markets
- Rapidly expanding the customer base
If a scaleup is taking on any of these challenges, expert financial planning can help make their lives significantly easier.
Running a successful scaleup, one which has the potential to grow exponentially, comes with many responsibilities and running the financial side of a company can be one of the most daunting. There are however third party tools and services that can help along the way.
There are financial tools that go beyond accounting or financial reporting and allow users to see the full picture of their company finances. Netsuite, for example, allows users to plan and forecast financial activity based on all company incomings and outgoings. It also allows subscribers to run custom reports and simulations that factor in every potential cost that they could potentially face in the times ahead.
Xero and QuickBooks also provide their users with a holistic view of their financial accounting data and can be integrated directly with Soldo prepaid business cards and accounts.
Financial advisors and agencies
For companies who would prefer to receive expert advice, there are countless financial planning advisors who can provide vital support.
Specialised business financial advisors and advice agencies can take a more objective view of a company’s financial health, ambitions and scalability. This allows them to help create a realistic financial plan to aid with this scalability and ensure that the entrepreneur’s eyes aren’t bigger than their bellies.
For businesses looking to stimulate large-scale growth across all areas of their business, it can be worthwhile to bring the financial planning expertise entirely in-house.
A dedicated financial planning manager can be particularly useful to a startup whose business model relies on several rounds of funding and, by extension, several rounds of rapid growth. To ensure that these processes are repeatable, scalable and aligned, a financial planning manager can be a worthwhile investment.
Generally, a financial planning manager will fulfil many or all of the following duties:
- Devising and implementing financial tech systems and processes
- Making short-term cash flow analysis and forecasts
- Routine analysis of internal controls on spending, expenses and large purchases
- Creating and analysing financial models and simulations (basically, judging how different scenarios will play out)
- Anticipating the company’s cash flow and financial projections, making contingency plans based on realistic issues that may arise
- Implementing growth strategies (seeing opportunities for scaling up and putting them into practice)
- Running day-to-day financial operations such as payroll and managing pension funds/schemes
What does a scaleup finance plan look like?
When faced with the question of whether a company wants to grow their revenue, team size, product or service scope, it can be tempting for business owners to reply with “all of the above”. This approach can be very counterintuitive.
The first step in establishing a scaleup financial plan is to identify tangible priorities and precise targets. Yes, many of the aforementioned growth areas go hand-in-hand, but depending on the type of business and the structure in place, growing in all areas isn’t always straightforward.
Plan in stages
There are many ways to identify and execute financial planning in a scaleup. One of the easiest ways to compartmentalise the process is to separate each core task into one of the three core stages of scaleup financial planning and implementation:
The first step in scaling up focused on what is required to hit those pre-defined business targets:
How exactly is the SMB going to attract the income it requires to fund sustained growth? What costs will be involved in this process? This can cover everything from marketing costs or hiring sales staff to engaging and securing investors
With the right initial funding in place, how will the business deliver the required results to stimulate growth? What will keep the business ticking over during the period between accepting new work and being paid for that work? What extra costs or approval structures will need to be implemented to bridge this gap?
- Applied analysis
Are there discrepancies between how the business finances are currently running vs how they will need to be run to facilitate growth? Which processes can be optimised or streamlined and which ones will need to be updated in order to scale?
This moves into the more practical and implementation side of financial planning, which comes into force when it becomes clear that the funding is available to scale up:
This goes deeper into how and where the money will be spent in order to scale up. This goes beyond the conceptualising or planning and actually getting quotes from suppliers, identifying rent budgets for new office space and liaising with recruitment agencies where required
Putting the financial structures in place to ensure that staff can be onboarded easily and are given all of the equipment they need to thrive. This applies to everything from having a robust payroll software system to signing up to a company-wide expenses platform such as Soldo’s prepaid card services
What strain could scaling up put on the existing processes and infrastructure and how can they be made more robust? How can the business plan financially to ensure that any risks are mitigated or preempted? This could mean upgrading servers, increasing desk space or upgrading to a better pension system
This final stage looks to sustain the sudden upsurge in company size and scope, to make sure that any gains made during the scaleup period aren’t simply temporary flashes in the pan. This requires a distinct set of planning parameters that should be discussed and agreed upon at an early stage as part of the long-term strategy:
What will a sustained period of growth do to the value of the business in question? What are the tangible benefits that the owners can expect to see on the bottom line? Many companies decide they want to scale up without thinking about their tangible targets and what will happen once the dust has settled. This stage helps prevent unwanted surprises
How will the business sustain this level of growth? Will it require consistent larger orders or clients to come in or will the next stage of growth require another round of equity-based investment? How much will it cost to sustain the business in its new, expanded state?
Once a company has successfully navigated the scaling-up process, it can be tempting to slip into old habits and to lose momentum. A successful financial plan doesn’t end once the business has fulfilled its initial growth target, it creates an environment for continued, sustained growth over years. This is primarily a case of putting scalable processes and systems in place to make each scaling up period easier than the last.
Measuring the success of a financial plan is inextricably linked to the success of a planned period of accelerated business growth. There are, however, ways in which a business owner can measure whether their financial plan has helped them achieve their ultimate scaleup goals:
- Check the business bank account and measure profit and loss against the financial plan forecasts. The financial health of a business can depend on whether the amount of money coming and going out of the business is as healthy after scaling up as it was beforehand. So it pays to make sure it was all worth it
- Run a customer satisfaction survey using a tool such as SurveyMonkey or Attest to see whether new and longer-term customers are still satisfied with the company’s goods or services. Running one of these before and after a period of growth can highlight areas for improvement, while also checking whether standards have dropped.
- Hold internal company reviews with the team to see whether their ability to do their jobs has been helped or harmed by the rapid growth and how else the financial plan could be improved in the future.
Processes and products to implement today
Financial planning is a no-brainer for SMBs and startups looking to move into scaleup territory. It can help sidestep countless financial and emotional pressures that come with growing a successful business and can ensure that growth is both fast and sustainable.
The key is to be prepared and know when to bring in assistance. There are also plenty of steps that any small business can take today to start putting the systems and processes in place to facilitate that business growth.
Technology and software
There are financial technology tools available for small business owners that are as useful for a team of three people as a team of 300, which can scale as the business scales. These include:
- Soldo cards
Soldo prepaid expense cards allow business owners to give prepaid expense cards to everyone on their team and to set centralised spending limits and rules. Digital receipt capture and reporting is quick and easy and removes the need for paper documentation or manual reporting. This creates a more streamlined expense process and provides visibility over company spending which is valuable for any size of business.
- Xero and QuickBooks accounting software
These are the two best known and highly trusted accounting software tools in the UK. They allow SMB owners to manage their accounting and taxation in one single online dashboard, making financial reporting and planning easier and more efficient. Soldo cards also integrate with booth tools, meaning all transactions can appear automatically in one central hub. They also make running basic financial activities such as PAYE and pension schemes much easier
- Business bank accounts
Many Challenger banks, such as Starling, offer business bank accounts that can offer extra features and benefits as a company grows, without needing to register new accounts after each growth period. This potentially removes a huge amount of unnecessary admin.
- Credit score providers
Free credit score checkers such as Experian provide SMBs with the opportunity to stay abreast of their financial health and therefore understand whether they are likely to be accepted for a credit card or business loan, should their financial plan require one.
Scaling up is an exciting process, but forecasting and predicting what will happen can be both daunting and stressful. Financial planning is one of the most comprehensive measures a small business owner or entrepreneur can implement to mitigate that stress and to ensure that their business grows quickly and sustainably.
Financial planning can prove the difference between a business reaching its growth potential and being left behind, making it an essential part of building a thriving business that continues to progress for years to come.