Odds are that if you’re running a company that’s scaling rapidly, you’ll likely experience growing pains in some form or fashion. You know, like figuring out how to secure more office space. Writing HR processes. Setting onboarding expectations and offering better training opportunities for new team members.
And let’s not forget our dear friend, YOUR COMPANY’S FINANCIAL HEALTH.
Kind of important, right?
Growing businesses, particularly service-based companies like web design and development agencies, often reach a point where they desperately need professional financial advice, but can't yet afford or justify paying for a full-time CFO or controller.
It happens all the time.
For more than ten years, our Virtual CFO team has managed the financial health of a number of growing business, and we’ve learned a few things along the way.
Below are three accounting tips we can offer for high growth companies:
1. Create a cash reserve account.###
This is effectively your company’s emergency fund account. You know, if receivables aren’t being collected on time, or if you’d like to take advantage of a business opportunity, but you wish to use your own cash rather than going to a bank.
Generally speaking, you’ll want to maintain at least 2 to 6 months of operating expenses (or 10-30% of your annual sales) in your bank account at all times. The percentages are not an exact science, but they are close enough and very easy to remember. So, if your business does $3 million dollars of annual revenue, then you will want to keep $300K to $900K in the bank at all times.
Your cash reserve account helps you weather financial storms. If you don’t have this account, a minor issue can quickly turn into a major one.
2. Don’t be afraid to raise your prices.###
In this article on Medium.com, I walk through how a company that raises its effective hourly rate by just $10/hour can generate almost $300,000/year in additional profit.
Don’t be afraid to examine your pricing and to raise it where appropriate.
3. Learn to forecast more regularly.###
Most companies employ a bookkeeper or accountant who looks at past performance to forecast what the company’s next month, quarter, or year will look like.
And that’s fine…but it’s not nearly enough.
A true forecast is more dynamic. It’s updated regularly — think every DAY or WEEK instead of each month or quarter — and it factors in a lot more detail than a traditional forecast.
From hiring and firing and offering raises and bonuses to bringing on new clients, implementing new software solutions or preparing for an upcoming conference or event, your revenue and expense model is in constant flux.
And if you’re a growing company, this will all be exaggerated, making the need for more regular reporting and forecasting that much more important.
I hope these tips have helped! If your company is growing fast and you’re worried about what that means for your company’s financial health, don’t hesitate to reach out. You can schedule a free consultation with one of our Virtual CFOs here.