5 Challenges CFOs Face at High Growth Companies in 2022

5 Challenges CFOs Face at High Growth Companies in 2022

Rapid revenue growth is a good problem to have. It signals marketplace success, customer engagement and product/service acceptance. However, it also creates challenges around scaling, reporting processes, and data cleanliness.  

As the CFO role evolves to one of digital transformation, addressing these areas of potential weakness is necessary to ensure that revenue accounting can scale seamlessly as a business grows. Here are five common challenges CFOs face at high growth companies.    

1) Discipline

In many organizations, the ability of product, sales, and marketing to create wonderful new product offerings, pricing strategies, and promotional programs outstrips finance’s ability to define and deploy the appropriate accounting. For example, introducing new payment plans will typically require that revenue recognition rules are modified.

Finance needs to be involved at the front end of market and product planning so that accounting rules are correctly defined, processes developed and tested, and effective controls established.  

Lack of discipline in revenue accounting creates a number of problems for CFOs such as:

  • An inability to support the launch of innovative new products, pricing, and promotions in a timely fashion.
  • A backlog of items in suspense accounts that need to be manually cleared extending month end closing cycles.
  • Potential audit issues in demonstrating the correct application of GAAP.
  • Inaccurate reporting to management that leads to suboptimal decision-making.

2) Data

As businesses scale it is not just the volume of data that increases but also the types and sources of data. CFOs are spending much more time on addressing data quality and integrity issues.

Ensuring that data architecture and governance practices adapt to new and different data types and sources is crucial. Partnering with different payment services such as Paypal, Stripe or Venmo, for example, demands that transaction feeds to the revenue accounting subledger can handle multiple different data schemas. CFOs need to have confidence that the business logic is built into these data feeds to ensure accurate mapping and posting of transactions to the revenue subledger.

As businesses scale, CFOs need to ensure the integrity of all data used to process transactions, prepare accounts, and create reports. Inconsistencies in data lead to account posting errors and can drive substantial rework. As businesses invest heavily in analytics, trust in the accuracy, integrity, and timeliness of data is paramount.  

Increasingly, CFOs are taking on broader enterprise data governance responsibilities to ensure that the source data that feeds accounting subledgers and the general ledger is managed effectively.  

3) Automation

Many startups can get by with largely manual accounting processes. However, as volumes increase, manual processing becomes a bottleneck and errors begin to multiply. Forward-looking CFOs build a scalable capability from the start.  

The good news is that the price point for leveraging world-class revenue accounting software and tools has reduced significantly. Using cloud and software as a service allows a CFO to deploy market-leading tools and technology from day one confident that the capability can scale as the business grows without incurring large upfront acquisition, configuration, and integration costs.  

Automating each step from data collection, mapping, posting, and reporting streamlines the end-to-end revenue accounting process and reduces the risk of manual errors. CFOs have long been engaged in the application of technology to business processes.

However, there are still numerous examples of automation projects that fail to deliver the expected return on investment. CFOs need guard against pitfalls such as:

  • Approving business cases where the returns are speculative and results are not measured.
  • Automating inefficient processes that fail to drive improved cost and productivity.
  • Adopting standardized business logic that is not attuned to the specific needs of the business.
  • Failing to adequately invest in the training of staff in how to use new technology most effectively.  

4) Capability

Revenue accounting team members need to grow with the business. Their roles rapidly progress from processing transactions and creating reports to managing end-to-end processes and performing analysis. Hiring and developing talent so that they can quickly migrate to higher value-added tasks will reduce growing pains.  

Recruiting accounting professionals and then developing their analytic skills through specialized training not only equips the organization for both today and tomorrow but also can provide a very attractive career path. Talent remains the differentiating factor within a finance team and CFOs routinely cite the acquisition and retention of talent as their number one issue.

There are two major risks that CFOs need to manage as their business scales. First, there is a real risk that top talent will be hired away by larger competitors offering more attractive career prospects and compensation. Second, as the business scales the skills needed within the revenue accounting team change.

As automation increases, manual transaction processing is replaced by advanced analytic work. Progress towards an IPO will require the addition of additional compliance and reporting skill sets.  CFOs need to develop a finance talent strategy that can meet the changing needs of the business over time.

5) Transparency

The cumulative effect of problems in any of the areas discussed above is a loss of transparency. Transparency is the foundation of accurate and timely revenue accounting. CFOs need immediate answers to questions such as:

  • How quickly will we convert outstanding receivables to cash?
  • What is the likely impact of refunds or canceled contracts on our future revenue?
  • Which customers are falling behind in their payments?
  • How can we demonstrate to our auditors that we are accurately applying revenue recognition rules across our business?

As businesses grow CFOs spend an increasing amount of time engaging with different stakeholder groups. Clarity and transparency about the true growth and profitability of the business are essential to developing and sustaining confidence.  

The board of directors, the audit committee, investors, bankers, and business partners pay close attention to the messages that CFOs communicate. Credibility can be severely damaged if the business consistently misses revenue forecasts, delays publishing results or is unable to answer basic performance questions.

In Conclusion

CFOs can significantly reduce risk and eliminate pain in their revenue accounting by combining proven business logic, scalable technology, disciplined governance, and well trained talent to oversee the single most important finance process for any fast-growing company. In the age of automation, it has never been easier to find a third-party solution to help overcome these challenges while also empowering your team to take a leading role.

Are your systems and processes ready for hyper growth? Learn how Canva’s CFO equipped his team for future growth by leveraging a revenue subledger.