Finance function performs key role in fast-growing SMEs

A CLEAR correlation exists between high-growth businesses and finance functions that extend beyond an auxiliary role to one of a strategic business partner, a report by ACCA has found.

The report, based on interviews with eight chief financial officers and financial controllers at businesses growing by 70% over three years, found the finance function “played a central role” in the business planning of most of these businesses.

In most cases, the finance function initially fulfilled its traditional accounting role and basic processes, but became more strategic over time as each business grew and diversified.

The remit of the finance function was almost always found to extend beyond operational tasks and processes during – and especially after – periods of high growth. It often became a strategic business partner in itself, driving this growth through its analysis of cash flow estimates, local tax regimes, probable consumer volume, and how much capital to inject into new market development.

All of the businesses surveyed delivered strong growth either through strategic internal decisions to enter new markets, by acquiring technical expertise that enabled the development of new products, or as a response to external stimuli such as consumer demand for new technologies.

There to prepare

According to Rosana Mirkovic, head of SME policy at ACCA and author of the report, the finance function plays an integral part in ensuring the business takes full advantage of these opportunities, without compromising the future of the organisation.

“The rapidity of this type of growth can lead to issues such as insufficient staff capacity, increased business ‘traffic’ such as simultaneous deals, or entering new, very competitive or politically unstable markets,” she said.

“To combat this change in environment, the finance function must become integrated across the key business development departments in order to prepare carefully for, and plan, new growth.

“SMEs experiencing fast growth require a CFO willing and able to take a key role in monitoring and controlling high growth as it unfolds, as well as forecasting future trends and possible new directions for the business.”