Low Hanging Finance Fruit for Emerging SMBs

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Finance is not a necessary-evil corporate function – it’s the opportunity to gain insight into your performance, look forward to plot the financial path, and structure accordingly. For many small and midsize businesses (SMBs), the function is often ignored – operations may be small enough to manage by feel, focus and dollars may be prioritized elsewhere, or finance is just assumed to be lumped in with accounting. If you’ve got growth aspirations, the finance tree is a crucial part of the garden. Let’s pick some fruit.

Finance is split into two components: 1) corporate finance, and 2) financial planning and analysis (FP&A). Corporate finance is transactional and utilizes the balance sheet (most notably, debt and equity capital). FP&A is operational, including the deciphering of historical performance (the ‘A’) and the forward view characterized by budgeting, forecasting, and scenario analysis (the ‘P’). 

Although the finance tree is the one with the fruit of the future, there’s no avoiding accounting when historical performance is part of the equation. The intersection of accounting and finance is the bridge from the backward to forward financial view of your business.

Below are 3 pieces of low-hanging fruit that growing SMBs can snag to improve their finance function and their finance future. 

Clean Up the Books for Insight, Flexibility, and Scalability

Accounting matters for finance. Historical financial information is needed to perform all sorts of analyses: business profitability, customer profitability, product line mix/profitability, fixed vs. variable cost analysis, cash cycles, etc. To properly leverage this insight, you need:

  • Accurate numbers
  • Timely availability
  • Underlying detail to complete analyses (such as product line breakdowns)

Getting to a good place on the books is easier than ever before. Expert service providers have mastered accounting work flows, and in many instances can outsource the bulk (if not all) of your accounting department. These solutions are extremely cost-effective, remove the pain of accounting employee turnover, and drive down the time for financial analysis by providing a clean base of information. We’re big fans, even participating in the design and report development process to maximize the value of the service to the businesses we serve.

Low-Hanging Fruit #1: Get the books right and get more than performance insight. Readily scale with the addition of new products or locations, create replicate-able and trainable processes, and meet monitoring and compliance requirements of outside capital providers. Don’t let information failure limit your financing flexibility!

Track Operating Data by Whatever Means Necessary

Each business has its unique set of drivers and metrics – those that are both applicable and material are your operational and financial key performance indicators (KPIs). Unit backlogs, current pricing, labor utilization, per-unit breakdown of input costs – these are the types of current and forward-looking items that factor in to how you’ll make your money (and allow you to forecast!). The financial performance is confirmation, and while you should make sure the story checks out, the path forward is not found in the past.

When it comes to tracking operating data for SMBs, start early. You may not have access to automatic data capture or top-end ERP systems to speed the velocity of information, but that process starts from ground zero with you. Intuition can take you far, but until they commercialize cloning devices, it is not a plan to handle growth.

Low-Hanging Fruit #2: Track the data that matters, focusing on the operational drivers not picked up in your accounting output. Finding the most valuable metrics and instilling the tracking discipline in your organization will trump any system’s capabilities – it’s on you.

Act Big to Be Big by Educating Yourself on Best Practices

Other than sales and top-line growth, nothing inspires more credibility with capital providers than understanding how scale impacts your business from personnel, process, and profitability perspectives. Nobody expects the $10 million revenue company to have the same infrastructure as the $100 million company, but lenders and investors want to ensure that leadership has the chops to manage through growth. 

Growth is good, but it affects stakeholders differently. For example, lenders just want to make sure they get repaid – if you stretch your near-term cash in pursuit of the top line (e.g. tripling the salaried salesforce), a small blip in sales can cause big problems in meeting your debt payments or loan covenants. Equity investors, on the other hand, typically rely on growth to reach their targeted returns – any failure to understand performance, credibly forecast, and/or communicate proactively about the future outlook can quickly sour those relationships (or keep you from attracting them in the first place).

Low-Hanging Fruit #3: Seek out information on how similar companies manage their businesses, especially larger ones. Don’t let affordability or resource constraints hold you back – designing the growth path now leads to stronger management decisions, improved access to working capital, and a more attractive story for outside investors.


Ben Lehrer is Founder & CEO of First Water, the one-stop finance shop connecting teams with data and companies with capital through Relational Finance. We help aspirational businesses leverage finance to drive clarity, visibility, and execution in pursuit of their goals.