Scaling Your Business

How to Conquer Business Finances at Different Stages of Growth

As your business grows, your business finances become more complex. But with some preparation, an investment in the right tools, and access to financial expertise, you can conquer these challenges.

There are 3 key stages of business growth, and each has its own set of financial challenges. Where you need to focus depends on the stage of growth you’re at. So recognizing where you’re at is the first step.

Stage 1: Getting Your Business Off the Ground

The earliest days of your business are all about planning and budgeting. What can you reasonably expect to bring in per month and how much do you expect to spend? And once you do start invoicing clients, how do you effectively manage the incoming cash?

Challenge #1: Cash Flow Problems

For early-stage companies, cash flow can be a huge challenge. As you generate business and develop your client list, you may spend more than you make. This makes it tough to raise funds with bank loans or a small business line of credit.

Solution: Planning and Measuring

Don’t skimp on tracking and reporting on your finances. Invest in software that automates most repeatable tasks, and make sure you always know where you stand. Base every business decision on how much cash you have on hand and whether spending cash will bring growth opportunities.

Challenge #2: Invoicing and Tracking Business Expenses

You’re managing everything yourself, including the company finances. Tracking expenses by hand gets old quickly and easily erodes billable hours.

Solution: Centralized Accounting Software

Having an easy-to-use accounting and invoicing solution makes staying on top of paperwork day-to-day—and in preparation for tax time—a cinch.

Stage 2: Scaling Your Business

For a scaling business, managing your business finances is all about establishing a strong financial infrastructure and investing in good financial habits.

Challenge #1: Managing a Growing Client Base

Managing multiple clients and project types can become nearly impossible as you grow. And missing the mark on client service can have a hefty price tag.

Solution: Automation

In addition to simply developing a good billing strategy (e.g., billing on specific dates), an automated client management solution can keep track of client information and related projects, and automatically generate invoices.

Plus, automatic payment reminders, late fees, and credit card payments make getting paid easier. Bonus: Automated billing is easier and more accessible for your clients, too.

Challenge #2: More Complex Accounting

If you find yourself ignoring the books for long stretches, then scrambling at tax time to organize your expenses or invoices, you know you are outgrowing your current accounting solution.

As you grow, your bookkeeping responsibilities also grow, and that’s not where you want to focus your time as a small business owner. And more money coming in and going out leaves more room for mistakes or omissions that cost you time and money to fix—especially come tax time.

Solution: Bookkeeping

A bookkeeper or bookkeeping service can help with financial record-keeping and tax filing. Accounting software will help, too. Just make sure your accounting solution offers double-entry accounting to track all incoming and outgoing costs effectively. Luckily, FreshBooks can help connect you with the right bookkeeper for your business.

Not Sure If You Need a Bookkeeper, an Accountant, or Both?

Knowing who you need to help manage your business is just as important as deciding when you need help. Traditionally, a bookkeeper records financial transactions, such as income and expenses, accounts receivable and payable, and even payroll. An accountant takes the information from financial reports and transactions and uses it to analyze and report on your company’s business finances. Then, they offer advice on how to establish and maintain financial health.

In real life, however, there’s a lot of overlap. Bookkeepers may offer services more traditionally reserved for accountants, and vice-versa. To find the right accounting professional for your small business, evaluate based on the services you need.

Stage 3: Growth and Stability

With income and cash flow relatively stable, spending large amounts of money and increasing team size become realities. Your accounts have also likely gotten bigger and more complex. At this point, it’s all about finding the balance that lets you maintain profitability and secure greater growth.

Challenge #1: Lack of Resources

Once you’ve achieved stability, you begin to standardize the way you do business and look for ways to grow further. But sometimes you aren’t ready to get where you’re going alone.

Solution: Staffing

At this point, make sure you hire a team that will invest in your growth. That means paying competitive salaries, providing benefits, and investing in career growth. At this stage, there’s no room for stopgap hires.

Pro tip: Hiring staff comes with additional costs beyond just a salary. Learn more in “Growing Your Team? Here Are the Hiring Costs to Consider”

Challenge #2: Making Sound Long-Term Financial Decisions

Hiring people brings a new responsibility. People rely on you, so you need to make sound financial decisions that keep your business on stable footing, such as minimizing tax liabilities and maximizing tax benefits.

Solution: An Accountant

Every business reaches a point where its finances need more hands-on care. Otherwise, you leave your business—and every employee you’ve hired—at risk.

A good accountant can help you manage your business finances by:

• Offering tax advice, tax planning, and filing tax returns
• Determining the right accounting system and processes
• Setting up a payroll system
• Applying for a small business loan or another business financing option
• Weighing the pros and cons of debt financing versus equity financing
• Building your business’s credit rating with a business credit card
• Analyzing the pros and cons of financial decisions, such as purchasing versus financing, or leasing property and equipment
• Determining how much to pay yourself, so your personal finances benefit from business growth
• Issuing financial statements for lenders and investors

Additionally, an accountant can help you spot risks like this before they threaten the financial health of your small business.

(Another) Solution: In-House Financial Expertise

As you start hiring staff for non-primary business activities, such as recruiting and IT, it makes sense to bring financial expertise in-house as well.

Having an expert on hand, rather than a third-party resource, can give you the peace of mind that your financials are being taken care of. Did you know that wearing multiple hats can reduce your productivity by up to 40%? By shifting financial responsibility to someone else, you get an expert opinion and the opportunity to reclaim your productivity.

Stage 4: Plan Ahead, But Stay Flexible

Growth may bring a certain level of stability in terms of revenue or the size of your team. But as it grows, a business needs to remain flexible in order to maintain profitability. Solutions that worked at one stage may not at another. Be willing to adjust your business plan and operations accordingly.

For example, consider a situation where you currently rely on a single anchor client or even a specific target industry for a large portion of your revenue. Suddenly, that client’s budget dries up, or the industry takes an unexpected downturn. That loss can cause significant disruptions to your business—especially if you haven’t planned for it.

Will you have enough cash on hand to pay your employees? Will you need to incur debt to make up for a shortfall?

Your ability to pivot quickly will help ensure your continued financial success. In the case of the example above, you’d need to find a new anchor client or target market to ensure revenue stays diversified and consistent.

If you’ve been nurturing smaller clients and projects in different industries, and have developed a cross-sell or upsell program, then you can target the clients most likely to take a jump from a small, one-off project to continuing work.

Your understanding of your business’s financial health will help you understand exactly what you need to do to keep profits strong.

At Every Stage, Review Reports to Manage Small Business Finances

Whether you’re working with a third-party accountant or have in-house expertise, as a small business owner you still need to have visibility into how your company is doing financially. And that means knowing your financial reports inside and out.

You don’t need to do a deep analysis of the numbers. You simply need to be able to identify the trends and red flags—such as unusual gains or losses—that tell you if your business is healthy or in trouble.

Financial Reports You Should Read

Your accounting software will generate the right financial reports whenever needed. Make yourself familiar with the following reports:

• Profit and loss statement: Also called the income statement, this financial report shows how much money your company earned.
• Balance sheet: This financial statement shows your company’s assets, liabilities, and available capital at a particular point in time.
• Cash flow statement: This financial statement shows how much money came into and went out of your business during the accounting period.
• Accounts aging report: This financial report shows how much money is outstanding and who owes you money.

Understanding these reports and comparing the numbers over time will give you crucial visibility into your company’s financial health.

Every Stage Has Its Own Challenges…

Every stage of your business will bring new and pre-existing challenges. If you manage your money effectively in earlier stages, this sets the groundwork for future success and gives you an accurate reflection of your current business finances.

When you have real-time, accurate financial information coupled with financial expertise and an agile approach, you’ll be equipped to foresee upcoming challenges. With that foresight, you can make better business decisions and mitigate the increased stress levels that often come with growth.

This post was updated in November 2022.