Finance transformation inside a “generational” company

Finance transformation inside a “generational” company

We recently had a chance to catch up with a finance transformation leader at a company with exploding revenue – growing to several billion in revenue from zero in under a decade. It was a great chance to ask them what the world looks like from their point of view.

They emphasized how much of their challenge was about having the accurate data available to decision makers, and the process and systems challenges getting in the way.

Finance transformation and overcoming the challenges that come with a rapidly expanding business model

Below are snippets of our conversation based on 5 questions we asked about the company.

What did you see when you joined the company?

As part of our massive growth we launched in massive new markets every couple of months. We were optimizing for growth, and had the capital to do it. It’s been quite a ride.

One consequence of this amazing growth was that finance was always a step behind. We’re only three years from coming off of Quickbooks!

Our processes and data are a total mess. Our systems are not integrated. We had a ton of outsourced team members to try to keep up with the manual work.

So notwithstanding the finance pain in general, why has it gotten so acute now?

With the shift in market conditions, we are much more focused on balancing growth with profitability, which means our executive team needs a much closer handle on how revenue and profit is coming in during the month, and also that as a finance leader I have to work with more constrained resources.

When I joined a year ago, we were in the midst of implementing Oracle. We spent millions to make it our single source of truth for all our analysis, but Oracle is not integrated with operational systems and processes upstream, so the data flow into the ERP isn’t right. Moreover, Oracle data is updated monthly, but the business needs daily and weekly reporting.

When the business pulls data from operational systems, it’s incomplete. For example, if they pull revenue and contribution profit from our reporting systems they get a particular set of numbers.

And then at the end of the month, accounting reconciles our order system to our credit card data — order to cash — and discovers that the actual revenue and profit numbers are actually much lower than the operational data indicated, and everyone’s frustrated and disappointed.

finance transformation struggles

Why specifically does the reconciliation not match the operational data?

There are many reasons, but here’s one example: a customer orders something for $100, but it isn’t delivered correctly, so it gets reordered and delivered automatically. The operational system shows two orders for $100 and so a revenue report exported from it shows $200. But of course we only collect cash once, so when accounting finishes the reconciliation it shows $100.

And because that month end reconciliation takes 2 weeks and only happens monthly, it’s a nasty surprise.

Another example is that we can’t do a basic 3-way match on the COGS side between our inventory management system (built in house), our purchasing invoices, and receipts. It’s a real mess.

In the context of the rapid growth you’ve had, what do you think allowed the current situation to emerge?

When you are rushing to build something very, very, quickly, it’s hard to plan ahead and think through a complete architectural design.

Our order to cash process diagram has a bunch of boxes on a page with arrows going every which way and so many places where data can break down. It literally looks like a bowl of noodles. As the business rapidly grows, you build one connection at a time without thinking about the whole, because you don’t have time. So you end up with all these layers of complication to deal with mispacks, charge backs, refunds, and so on.

Given your mandate, how are you thinking about bringing order back to your systems and processes?

I need to build out a finance systems group or at least a finance product person to help us design a better approach. And of course bring in the right systems to manage all this data in a more rigorous and methodical way, so we can have daily visibility and confidence in our revenue and cost of revenue.

Get more insights like these from Leapfin

During our conversations with customers and finance leaders, we’ve heard over and over that high-growth digital companies are blazing a new path and aren’t sure where to turn for important advice that’s relevant to their situations and managing finance data.

In the months to come, we’ll be acting on what we heard, from creating ways to meet peers in similar companies, publishing more content, and much more. If you’d like to learn more, please join our email list.