The document discusses some of the unexpected challenges that businesses may face during periods of growth, such as tight cash flow, hiring new employees, outdated accounting systems, and declining quality or rising costs. It emphasizes the importance of monitoring key performance indicators and financial metrics to identify issues early, and provides tips for managing cash flow, hiring needs, system requirements, pricing, and quality as a business expands. Overall, the document aims to help businesses proactively address potential problems that can arise during growth phases.

1. Managing Through
Growth’s Unexpected
Challenges
Christopher Masters, CPA
Doeren Mayhew

2. Look for the warning signs:
Turning
No Project
Down
SLOW
Capital
Shortages
AHEAD
Customer
Complains
WARNING
Losing Sight
of the
Competition
disaster
Reactive vs.
Proactive
Mode
Disaster
site
Ignoring the
Small Costs
danger
Addressing the Challenges of Growth

3. Addressing the Challenges of Growth
• Cash – You’ve got to know when to hold
‘em!
• People – Who are all these new faces?
• Systems – How does a balance sheet not
balance?
• Focusing on the KPIs
 Quality – Do we have to deliver on our
promise?
 Pricing – It never used to cost this much!

4. Addressing the Challenges of Growth
Cash
You’ve got to
know when to
hold ‘em!

5. Obtain
Cash
Buy Raw
Materials or
Pay Employees
Make Product
or Provide
Service
Sell Product
or Service
134
Days!
60 Days
30 Days 30 Days
14 Days
Cash Management

6. Cash Management
• Plan on funding at lease 4 months of operations!
• Virtually every business experiences times when
there is a cash-flow gap
• With that in mind, projected growth should be
managed within known cash-flow constraints … and
if external funds are required, this needs planning in
advance
• Managing cash flow is critical to navigate the first
challenge of growth

7. Cash-Flow Fundamentals
• Many businesses don’t realize that when you
begin to grow, cash flow will actually be
extremely tight
• This makes a cash plan for growth essential
• The easiest way to get out of control is to not
follow your well documented plan
• 4 fundamentals …

8. Cash-Flow Fundamentals
1. Budget
• Is an essential cash-flow management tool
• Is only useful if you update it regularly to reflect
actual spending
• Should tie into and support business goals (if you
can’t demonstrate how an item enables a goal,
question its merit)
• Should be examined line by line

9. Cash-Flow Fundamentals
2. Cash-Flow Forecast
• Is created with your budget as a starting point
• Reports the net increase or decrease in cash for the
business
• Factors in the cash inflows and outflows of daily operations,
asset purchase, sale proceeds and financing activities
• Both 13 week and 39 week cash flows can be useful
• Highlights potential shortfalls in advance (i.e. payrolls,
equipment purchase, insurance payments, taxes)
• Can look at it on a project by project basis

10. Cash-Flow Fundamentals
3. Manage Expenses
• Should be tracked by keeping accurate expense
records, which can be automated with your
accounting software
• Can be examined for ways to reduce day-to-day
operating expenses
• Outsourcing – stay flexible in growth
 HR
 Payroll
 IT support

11. Cash-Flow Fundamentals
4. AR/AP Process Review
• Credit/Reference checks
• Deposits/Early pay discounts
• Aim for zero-defect invoices to reduce scrutiny by the
customer
• Adhere to a tight invoicing sequence to prevent payment
delays:
 Consider billing upon completion of sales vs. on a standard
monthly date
 Try to make partially completed work billable
 Email/Fax invoices
 Tracking and collections on aging receivables

12. Example
 $20M staffing company grew to $30M
 Constant line defaults due to poor
projections
 Bi-weekly pay periods
 60 day collection cycle
 Monthly tax payments were always a
surprise
Cash Management Best Practices

13. Example
 $30M apparel company grew to $50M
 Purchased cloth from China
 Prepaid all purchases 2 months in advance
of receipt
 6 month collection cycle
 Had to create cash reserves
Cash Management Best Practices

14. Addressing the Challenges of Growth
People
Who are all these
new faces?

15. Hiring
• Determining the need
• Allocating or reallocating tasks among
available staff
• Part time/full time?
• Working with management on the idea
• Finding the right fit

16. Determining the Need
• Document hours being spent or
hours needed for each task
• Consider realigning tasks with
available resources
• If there is a need, determine if
it’s part time or full time,
temporary or long-term
• Determine if business cash flow
can sustain hiring
• Look to your competitors to get
a general pulse on hiring in your
industry
Document Hours
Spent/Needed
Can You Realign
Tasks to Fill Need?
Yes No
Part Time/Full Time?
Long-Term/Temporary?

17. Risks of Not Hiring
• Not billing the customer timely
• Collections not happening
• Expedited freight due to purchasing issues
• Quality is sacrificed
• Overtime and double time that will ruin the
budget
• Not meeting bank requirements

18. Risks of Not Hiring
Example
• Multi-million dollar international manufacturing
company
• Doubled the monthly buy and didn’t add anyone
• Purchasing agent became a firefighter
 No bulk discounts
 No lead time on materials
 Expedited freight
• Projects delayed

19. What Hiring Isn’t an Option?
• Inexperienced or unqualified people
 May not be time for training
• Putting people in tasks they don’t want to take on
 Student body shift
• Throwing bodies at every bottle neck
 Don’t just hire anyone

20. Communications Best Practices
• Listen to management and their departments!
• Understand what is needed and why
• Set an expectation of when the benefit will be realized
• Meet with the departments regularly – don’t just send an
email
• Challenge the status quo and prove it in a way that
others can understand
 Examples – commission program; performance bonus plans

21. Addressing the Challenges of Growth
Systems
How does a
balance sheet not
balance?

22. Accounting Systems
“Our accounting system
needs to share data with our
spreadsheets and other
software.”
“I want reports to
show data the way
I want to see it.”
“I’m tired of making
our business procedures
fit our accounting
system.”
“We have too many
systems that don’t
work together.”

23. Signs Your System is a Hindrance
• Staff keying in the same data more than once
• Recurring issues that aren’t resolved each month
• Too many hours spent reconciling between systems
• Use of Excel spreadsheets vs. system-generated
reports
• Not enough control
• Not providing reliable information
• Month-end close takes more than five business days

24. Key Considerations
Currently working
with more than
one system to
generate financials
Noticing
redundancies
in processes
Consider
compatibility or
replace with
fully integrated
software
Consider revisiting
processes and
making changes
to improve
efficiencies

25. Key Considerations
• Do you have sufficient resources to replace
existing software?
 Staff
 Technology
 Budget
• Have you or your management team ever gone
through a system implementation?
• Are you capable of overseeing the
implementation?

26. System Considerations
• Will the system capture all operating processes
or will you have to find “workarounds”?
• Will the system produce real-time, effective
reports to monitor the business?
• Does the system offer advanced security levels
for users?

27. Pain Points & Best Practices
System
• Assist in the assessment and determine
software that has the “best fit”
 Dual processing – manual entries
 Amount of “workarounds” and Excel reports
 Data capacity
 System capabilities
 Cost
 Support
 Evaluate functionality

28. Pain Points & Best Practices
Process
• Review workflow chart processes and identify
weaknesses within the process
• Recommend best practices:
 What processing obstacles are creating bottlenecks or
rework?
 Are there processes not being captured in the system?
 Are there processes incorrectly configured?

29. People
• Evaluate skill set of employees entering information
into the system and recommend whether additional
training is required:
 Identify individuals who create bottlenecks in the system
 Identify individuals who “work around the system”
 Recommend or assist with training to facilitate a better
understanding of the process
Pain Points & Best Practices

30. Implementation Cost/Benefit, Purchase ROI
• Use the 1% rule – estimate of revenue on total spend for
new system (i.e., annual revenue $25 million, budget =
$250,000 for new system)
• Analyze cost of consultant(s) and employee resources
• Consider cost of software – package, licenses,
maintenance
• Consider cost of hardware
• Determine if annual cost moving forward is appropriate
for the business
• Quantify the cost of man-hours saved

31. Client 1: Optimize Existing System
• Plastics manufacturer for oil/gas industry
• Implemented system on its own, resulting in problems:
 No real-time reports or dashboards
 No accurate job costing
 Lengthy month-end close
 Lost sales opportunities
• Evaluated the system, outlined recommendations and helped
the company implement changes
• Result: Estimated reduction of 550 hours and $28,000/year
Example

32. Client 2: Implement New System
• Service company looking for new system to better
integrate with Microsoft Access database to alleviate:
 AP issues
 Billing errors
 Double entry
• Researched software options, weighed costs versus
benefit and assisted in implementation
• Result: Estimated reduction of 875 hours and
$23,000/year
Example

33. Words of Wisdom
• When planning your system assessment remember
the inter-relationship between the variables:
 Cost – inexpensive/expensive
 Time – least amount of time/maximum time
 Quality – low/high
You really can only choose two of the three,
as the third variable will always be affected
by the other two.
Choose wisely!

34. Remember …
• It’s important to understand the numbers
• Once you know what’s going on, you can
investigate likely causes
• Never assume anything—a good
management information system is worth its
weight in gold and will prevent errors in
judgement from costly guesswork!

35. Addressing the Challenges of Growth
Quality
Do we have to
deliver on our
promise?
Pricing
It never used
to cost this
much!

36. Learning to Rely on the Numbers
• As the business grows, management begins to lose
the “intuitive” feel they once had about the business:
 Don’t “know” everyone anymore
 Don’t understand what all these numbers mean
 No longer able to gauge employee productivity
 Business becoming more department-oriented rather
than individual-oriented
These growing pains are just a few signs
that it is time to take a higher-level approach to
financial management

37. What should I look at?
• Typical trouble areas
 Overtime
 Freight
 Less obvious costs
 Utilities
 Rent
 Property taxes
 Capital expenditures

38. Focusing on the KPIs
• Key Performance Indicators (KPIs)
 Provide insight into the numbers
 Benchmark against prior reporting periods
 Track performance throughout the growth
 Assist in identifying potential problems
 And more …
Be sure to explain differences and
changes, not just note them …

39. What’s a KPI?
• A measure of how well a process or area in the overall
business is performing
• Can measure processes in dollar or quality terms
• What can be measured?
 Operational performance – a straight measure of an activity
 Financial performance – results comparison, i.e., period vs. period,
your business vs. others in your industry, plans vs. actual
 Product/service quality – warranty issues
 Customer satisfaction – loyalty to your product/service
 Employee satisfaction – turnover, salary comparison or morale
 Pricing tool – labor rates, overhead rates

40. Purpose & Benefits of KPIs
• Facilitate better management
• Provide more than a scorecard of performance
• Help to identify existing or emerging problems,
as well as negative trends, before they become
a problem
• Measurement assists in clarifying and improving
existing processes

41. Purpose & Benefits of KPIs
• Serve as change agent
• Alignment of long-term goals with short-term
performance
• Provide milestones while working toward
long-term objectives
• Promote understanding of areas critical for
success
A way to get non-accountants to pay
attention …

42. KPIs & Critical Success Factors (CSRs)
• You must always get them right
• They are measured by KPIs
Sales Order Fulfill Order Documents
to Invoice
Invoice Prep Invoice Sent Cash
Collections
Obstacles
• Data Entry Errors • Poor Quality Control
• MissedTarget Shipping Date
• Inadequate Inventory
• Data Missing • Invoice Sent toWrong Address

43. KPIs & CSRs
To identify CSRs, ask which processes:
 Are vitally important to achieving your vision/
maintaining your differentiation or competitive
edge?
 Are most important to the customer?
 Have the greatest impact on cash flow?
 Have the greatest impact on ROI?
 Directly impact team morale?

44. Example: Cash Flow as CSR
KPI 1
Days in Accounts
Receivable
KPI 2
Clients Lost to
Aggressive
Collection
Policies
CashFlow
Measure Both
Sides
Financial Non-Financial

45. Levels of KPI Reporting
Enterprise-Level
(monthly reporting):
Ex. – profit and cash flow
variance from annual budgets
Business Unit-Level
(daily or weekly reporting):
Ex. – average transaction value, transaction
count, number of complaints received
Operational-Level
(daily or more frequent reporting):
Ex. – weight of coffee beans roasted per hour, number of sales calls made per day

46. Defining KPIs
• Who should be involved in defining your KPIs?
Those who:
 Own the process
 Are accountable for the process
 Can respond to unfavorable trends
• 3 musts:
1. The owner must understand the business strategy and
how the business processes contribute to it
2. The KPI must describe the targeted performance in
measurable terms
3. The KPI must be actionable

47. Where Should KPIs Be Used?
• Within all the major CSR areas:
 Finance
 Business processes
 Customer relations
 People development

48. Where Should KPIs Be Used?
• Pricing
 Direct labor hours
 Direct labor
dollars
 Fixed overhead
 Variable overhead
 SGA %
• Quality
 On time delivery
 QC rejects
 Returns
 Lead times
 Cost overruns

49. As You Grow
Example
• Manufacturing Company
 Grew from $50M to $140M in 3 years
 Experienced negative gross profit
 Expanded from two plants to five
 Significant capital expenditures
 Lost ability to shrink if needed

50. As You Grow
Watch the numbers:
• Revenue per employee
• Days in working capital – break into sections
• Average revenue per sale
• Concentrations with customers and vendors
• Overtime – in total and as a percentage of
revenue
• Backlog

51. As You Grow
Watch the pitfalls:
• Cash-flow crunches
 Pay attention to key ratios
 Use cash-flow projections
 Use budgets

52. As You Grow
Watch the pitfalls:
• People
 Hire vs outsource
 Be flexible
• Systems
 Can my current system handle growth
 Create the process

53. As You Grow
Watch the pitfalls:
• Customer service failures
 Create the KPI’s
 Is my pricing accurate?
 Monitor customer service metrics
 Quality suffers when systems and people are
stressed!

54. Thank You! Questions?
Christopher Masters, CPA
Shareholder
713.860.0264
masters@doeren.com
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