The importance of a strong finance function.

We often get the chance to complete due diligence work twice on the same SME scale-up company as they go through multiple investment rounds. Having done this recently has highlighted a simple yet significant fact: having a strong finance function is imperative to an organisation.

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Meera Shah

+44 (0) 20 7556 1452

Our first diligence work in a recent case identified a number of areas for improvement, with one of our key findings being an inadequate finance function. We often see smaller companies, who are starting to scale up, fall into this trap. Common features of such organisations include: 

  • continued informal financial processes,
  • part-time bookkeepers with a limited level of knowledge to handle increasingly complex issues of a growing business,
  • multiple accounting systems which do not reconcile and 
  • taxation errors and missed payments causing undue fines.

Such features were amongst those highlighted in our due diligence work. Our overriding message was that the company had essentially outgrown its existing finance function, increasing the level of risk from an investment perspective given the errors we highlighted in our report and the on-going impact. While the company had continued to grow, its finance function had fatefully stagnated. 

Fast forward several months and having taken on board many of our recommendations, the company made an extremely positive turnaround during the second diligence work we carried out for their next round of investment. What had made the difference? The recruitment of a more robust and experienced finance duo (a finance controller and director) to shake things up. 

In realising the impact that a weak finance function could have on inbound investment, the board prioritised improvement of the identified weaknesses at this most senior level and the finance pair have been regularly tackling the issues at hand ever since.

So how can the SME scale-up company of today prevent falling into this age-old trap? Sometimes all it takes is a long, hard look inwards: is your finance function sufficient for the future of your company? If not, be the one to take that first step in raising the issue and generate a plan for improving it, embracing the abundance of excellent part-time/interim finance controllers and directors available along the way.

For more information, please contact Corporate Finance Manager, Meera Shah, by filling out the form below.

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