Essentials for scale-up success: Mastering finance
In the last part of this mini-series – looking at seven challenges every growing business faces – we consider the importance of mastering the basics of finance
We’ve published an eBook for entrepreneurs and owners of growing businesses – Seven essentials for scale-up success – which outlines seven key challenges entrepreneurs must overcome in order to scale their business effectively. You can download your copy here.
In the last post we looked at accessing new markets, and how one cross-stitch and tapestry kits business grew by adopting three methods for attracting new customers. In this post, we discuss finance, and why it is vital for every scaling business to understand the numbers.
We spoke to Tracy Fitchett, Part-time Finance Director of 3chillies, a software house building websites and apps for well-known UK brands. She explained how the firm manages its finances for growth:
1. Recruiting a Finance Director
Founded in 1999, 3chillies grew organically with help from high-profile client projects. These have included building systems for Xbox, GAME, QA, RM Education and a number of legal organisations.
In 2013, owner engaged with a business mentor to help with strategy, planning and growth. They recognised that in order to grow and meet its targets, 3chillies needed a much better handle on its finances, and a recommendation of doing so was to hire a finance director.
“Hiring a finance director has freed the directors up to focus on winning new business, delivering key projects, and running the company.”
Tracy Fitchett, Finance Director of 3chillies
2. Mastering the essentials: cash, budgeting and planning
The biggest risk for every small business is cash. By introducing regular monthly invoicing and chasing debtors as soon as payments become due, Tracy has helped 3chillies to forecast and manage cash flow more effectively.
Every growing business must also learn to budget effectively. Tracy has introduced an annual budget, so the leadership team knows what the business should be spending on different line items month to month, and this planned expenditure feeds into the cash forecast.
This budget also guides decision making:
“You need a budget as a roadmap of where you want to be, in order to make the right decisions on how you’re going to get there. We review and update the budget to support large business decisions like new premises and key additional resource hires.”
3. Financial discipline creates a strong platform for growth
It took time and effort for 3chillies to introduce regular management accounts, budgets and forecasts, but by doing so the company is able to resource projects efficiently, invoice promptly, and ensure the profitability of each project.
The company now has the financial discipline in place to grow further. Each new project manager the company hires has the financial tools and reporting in place to take more ownership, responsibility and accountability, working closely with the Finance Director and Head of Delivery.
You can read more about 3chillies, and all seven challenges faced by leaders of scaling business, by downloading O2’s free eBook Seven essentials for scale-up success.