The Trap of No Forward-Looking Financial Plan

Posted by Chuck Kocher
On April 20, 2020

Scaling Up Requires a Financial Strategy That Scales as Well

Anyone who has ever tried to scale up a business knows that growth requires cash—and lots of it. One thing that stymies a lot of scaling companies is that they limit their financial thinking to things such as increased sales, reduced spending, and possibly an infusion of cash from an investor. They have no forward-looking financial strategy.

Don’t get me wrong: Increasing sales is probably a good thing. Having a firm grip on your expenses is essential. Finding an outside investor may be a real advantage (that’s a whole different discussion). Pursuing any of those goals can improve your current cash position. Having money in the bank, however, isn’t enough.

Transforming Your Financial Strategy

First of all, having money in the bank isn’t a strategy for scaling up. You may be able to cover your current financial needs with the money you have on hand. What happens, however, when you scale up production by a factor of 2x, 5x, or 10x? Will you have the resources to cover growing needs for materials, infrastructure, labor, and fulfillment? What will your sales and marketing expenses need to look like to generate the kind of sales you’re shooting for?

If you’re shooting for exponential growth, you’re going to have to change the way you think about planning, manufacturing, sales, marketing, and fulfillment. All of those things require cash. That means you also need to transform the way you think about finances. Scaling up a business isn’t about managing cash: It’s about having a forward-looking financial strategy. It’s about financial vision.

A Gaping Hole in Leadership

Perhaps the most serious issue I observe as a certified scaling up coach is a lack of financial acuity at the leadership level. I’ve written before about how important it is for growth firms to have great accounting practices. Great accounting, however, is not enough. Accounting is more tactical. Scaling companies need leadership with strong financial skills who also have the ability to understand vision. They need C-level leaders who can map out a financial strategy that matches the overall vision for the company. That’s something most “regular” accountant can’t do.

Scaling companies need financial leaders who recognize that the patterns and practices that are effective for a smaller company won’t work for a company that is growing exponentially. As a coach who specializes in helping scaling businesses, I often council leaders and their teams about the importance of hiring the right people for the right job. Finding an expert who can help you transform your financial practices so that they match your vision is one of the biggest challenges you may face as you build your team. It’s also essential.

Not having CFO expertise is a trap for any scaling company. However, it’s just one of the many traps you need to be aware of as you plan to scale up your company. That’s why I wrote, Avoiding the Growth Traps. This free eBook can help you identify—and avoid—many of the common mistakes that scaling businesses face.