GROWTH AND PROFITABILITYOptimizing the Finance Function for Small and Emerging Businesses phần 5

daily or weekly forecast predictions from the field will require finance staff to re￾spond to the information-gathering, processing, and analysis needs that underlie

these models. Powerful laptops with remote and/or wireless connectivity may be

necessary to facilitate such an upper-tier model. Companies that are less aggres￾sive with their data models may not require such tools for their staff.

ABILITY TO DICTATE FUTURE LIFE-CYCLE MILESTONES If the entire model is

working, the small and emerging business should position itself and plan for busi￾ness life cycle milestones by dictating appropriate upper-tier policies. Setting high

expectations in the finance function is one way for the business to optimize overall

business strategies. Understanding the business and information needs will give

management the knowledge to conceptualize and implement business models via

upper-tier considerations that will not only streamline the data flow dynamic but

prepare the organization for the next logical life cycle milestone. Palmer Products

(for example) eventually will need to access financing for future growth. Finance

institutions will require, among other things, that the company maintain certain fi￾nancial ratios and report on them quarterly. Realizing that Palmer Products’ finance

function is not suited for this after the papers have been signed is too late. Mark and

Andrew would risk the lender calling in the debt if they failed to accurately report

the data in question in a timely manner. The ongoing challenge for Palmer Products’

finance function will be to analyze and monitor these ratios in the interim. Know￾ing in advance that these reporting capabilities are a real part of the financing equa￾tion, Mark and Andrew can factor in these requirements in the upper-tier

considerations area of their strategy model and let them filter down through the

lower-tier considerations well in advance of the need to seek financing.

Putting the Upper Tiers (Tier 4 and Tier 5) into Effect

The considerations addressed at this part of the multilevel model cue the small and

emerging business owner to define the way in which it characterizes the data gath￾ered from the external environment. Optimizing the upper tier involves knowing the

ultimate information needs and the company’s capacity to capture, process, and an￾alyze data. Sound policies and strategies that stem from analyzing upper-tier con￾siderations will provide a solid platform for the small and emerging business to

navigate burdensome due diligence exercises and enable precision analysis. This will

instill confidence in the small and emerging business owner to tackle major company

life-cycle milestones. Carefully analyzing upper-tier considerations will yield:

■ Analysis paradigms. Analysis tools and models that provide input on the

company’s performance and well-being are key to managing the business.

The challenge is to ensure they are relevant and accurate.

■ Revenue recognition policies. Sound methodologies for recognizing rev￾enue must be in place for the company to properly reflect its activity on fi￾94 MULTILEVEL APPROACH

nancial statements, both internal and external. The organization must be

poised to address the expectations of external stakeholders. The credibility

of management is at stake when it comes to recording results and issuing

them to the public.

■ Capital structure strategies. The company must be positioned to make de￾cisions about financing. Discerning financing options will require an under￾standing of the advantage of debt over equity financing and/or vice versa.

Most important, the trade-offs involved in employing one over the other or

a mixture of both must be understood. The finance function must be pre￾pared to provide input into these decisions.

■ Margin and operating expense goals. It is critical for the small and emerg￾ing business owner to analyze outflows of cash. Having a sound methodol￾ogy for capturing and classifying expenditures will pave the way for sound

decision making. Such tools for evaluating the business will give manage￾ment the opportunity to segregate product/service decisions from general

operating decisions.

■ Company valuation metrics. The organization must have an understanding

of how well the individual components of finance are performing. The key

is establishing fair and accurate measures of company performance relative

to other companies in the industry. These metrics may be narrow (inventory

turns or operating expense run rates) or less specific (value of assets or rev￾enue size).

Even though the small and emerging business owner may not be prepared to

predict medium- and long-term company milestones (Tier 1 considerations) or de￾velop a robust finance organization (Tier 3 considerations), there will always be a

need to translate environmental data into meaningful and consistent financial tools

to feed the decision support system. Cash flow must be at the top of the list of fi￾nance areas addressed by the small and emerging business. Considerations are

classified into two categories: Tier 4—Optimizing the Balance Sheet and Tier 5—

Optimizing the P&L. Balance sheet considerations have a long-term impact on the

financial state of the company, hence these considerations will underscore P&L

considerations. It is important to note that agility in decision making in the upper

tier is dependent on solid planning in the lower tier.

TIER 4 CONSIDERATIONS: OPTIMIZING THE BALANCE SHEET

During the spawning stages of the company life cycle, the small and emerging

business owner must focus on survival and flash (hyper, high-impact) growth.

Managing cash flow and working capital is imperative. Throughout the company’s

evolution it will be forced to deal with capital management strategies (equity and

TIER 4 CONSIDERATIONS: OPTIMIZING THE BALANCE SHEET 95