The 5 Signs You’ve Outgrown Your Financial Systems

We thank Sana Khalid, the founder of Minerva, for inspiring this blogpost by doing a series on startup finance that you can check it out for yourself here.

Financial systems are the backbone of businesses, especially in high-growth environments where rapid changes demand agility and precision. In essence, financial management is about allocating resources effectively. This problem is extremely important for founders of emerging tech services. Being a high-growth business, good allocation of resources is essential so that data-driven decisions can be made based on the telemetry from the financial systems. 

Of course, having too mature a system would be expensive and would deteriorate any chances of expanding a startup, especially when their biggest advantage is having the ability to scale regardless of how small the company is at the start. Evidently, your financial systems must grow and mature alongside your company. 

This article provides tools for ETS founders to recognize when they have outgrown their financial systems so they can make the right investments in the next stage of business growth. 

Why Your Financial Systems Matter

As a founder of ETS firms, you will have to navigate through financial metrics and understand what those numbers mean to your business. When it comes to obtaining the right skill sets, having financial intelligence should be one of your earliest priorities to procure to be able to tackle any external factors that can impact your business. The right data metrics are indicative of your current growth progress and can show where your assets are being allocated. Founders can make value-based financial decisions driven by data by understanding their current place in the market. 

Any strategy is only as good as the unified effort put into making the strategic vision a reality. So your financial systems need to make it easy for you to allocate resources to your strategic initiatives. Otherwise, it is fair for a leader to rebut your expectations with a demand of "Show me the money". Additionally, it is important to know ETS founders primarily focus on growth which means that their financial decisions carry more risks compared to traditional tech firms. In our article we explain how founders can balance their sales while simultaneously scaling in size, this can be done by monitoring Operating Cash Cycle (OCC), the finances needed to generate sales, and how much profit is generated overall.  

Jerry Maguire (1996) via IMDB
https://m.imdb.com/title/tt0116695/

You need to be able to anticipate the risks ahead of time that your company will be facing. Without robust financial systems, you will not be prepared to take on these risks head-on. If your systems don’t expose your risk, that’s like saying “You can’t handle the truth!”. From the company’s recorded insights retrieved through the past, trends can be generated for the prediction of high risk vs. low risk future financial decisions to be taken. Not only that but since the mechanics of emerging tech service firms are more experimental in nature, having metrics to forecast the fate of your business will keep the firm focused on the greater vision and long-term goals.

A Few Good Men (1992) via IMDB
https://www.imdb.com/title/tt0104257/

How To Know It’s Time To Upgrade

As mentioned earlier, having too mature a system can represent a liability so developing your financial systems is a journey for your business. But how can you tell if you’re not mature enough? Check out our list of the kinds of phrases your team will say when trying to make a data-driven decision with insufficient systems:

Oh, That’s In The Other Spreadsheet

The first sign you’ve outgrown your financial systems is that you have many disjointed places with redundant, similar data. Any time a question of data comes up, your team has to look through multiple disjoint spreadshets and systems. There is always confusion on what is the canonical state of the data. You know this is a problem if you hear someone frequently say "Oh, that’s in the other spreadsheet." It means there are too many sources of information. Nobody in your organization can make decisions with an understanding of the big picture. You need to build consolidated systems so people know where to look for data and can interact with it appropriately.

That Number Needs To Be Updated

Your financial system is dynamic, changing every day. It will continuously be updated. If the updates are to be done by humans you are almost guaranteed to never have the right data available when needed. If you’re having a critical meeting and someone pipes up saying, "Oh sorry, that number needs to be updated.", then you have this problem. What you couldn’t resolve through consolidation, you need to be able to create automation to fill the remaining gaps.

Can You Tell X, I Don’t Have Access

As you grow the access control needs of your organization grows. You have to make some data available to more people, and some data needs to have limited access. If your financial systems are not robust enough, you will struggle to meet both requirements. Either you’ll open up too many systems and have a risk of compromising some personal data, or you will be too restrictive, meaning the people will have to jump through hoops to do their jobs. "Can You Tell X, I Don’t Have Access."

Does Anyone Know What X Is?

Imagine your leadership team is gathered to make a strategic. Someone raises a fair objection, and you have to look up the number. They ask "Does anyone know what X is?" and frequently, the answer would turn out to be is "We won’t have it till week/month/quarter/year." Then your financial system is not able to provide you with the data when you need it. Whether it be real-time or a quarterly roll-up that is needed depends on the data. But decisions should not be blocked because critical information is missing.

I Know What The Data Says, But The Risk Is Too High

Your data is only useful if you can make decisions based on it. If your team doesn’t trust the data on which they base their decisions, then there has to be an underlying cause. Many times in these situations you’ll discover the leader’s lack of trust was warranted. If the team is looking at the data and ignoring it because, in their heart of hearts, they know they can’t make any high-risk decisions based on the data. You’ll hear phrases like, "I know what the data says, but the risk is too high" is a sign that while you are able to provide the data there are enough issues and concerns that it can’t be used for decision making.

Conclusion

Sorry for any flashbacks from meetings we have made you recall. But the pains you’re facing are common. The key to addressing them is recognizing that your organization is constantly evolving, and your financial systems must evolve with the pace of your business. You will continuously be working on improving your financial understanding. As trauma-inducing as this article is, it gives you the tools to understand when you have a problem and are falling behind in improving your systems. We will be posting more content on this topic to enable you to build the financial systems to scale with your business, but in the meantime, you can subscribe to our Vixul blog to learn about more interesting topics like this one.