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The Role of a Strong Accounting and Finance Team in Seeking Capital

Matthew G.
Matthew G.

You may be tempted to neglect the accounting side of your business, but you might also be hurting your access to capital.

Are you looking to grow your business? As part of your strategy, are you putting together the right accounting and finance teams to help you achieve your business goals? 

Most entrepreneurs and business owners are generally involved in the accounting and finance side of the business as a way to save money and sometimes because there's nobody else to handle it internally. As companies seek to grow and expand, a section of the business that often doesn't get enough investment in dollars and manpower is the accounting department. But this crucial aspect of business, regardless of industry, is what separates companies from both a competitive and dynamic perspective.

At SMB Compass, we often see decision-makers choose to spend more on their operations or sales team, as they rightfully require key attention in any business. The challenge is how to acknowledge the gaps (both in talent and systems) you may have in your investment toward your accounting and finance team. 

Appropriate books and records for the stage of your business

Generally, SMB Compass sees this as the one place where most companies will have either a rock-solid system or plenty of room for improvement. Books and records are one of the most important parts of any business. Whether you're looking for a new loan from the bank, seeking to raise capital or planning to sell your business at some point, it is crucial to develop the proper reporting method for your business.

To determine how complex (expensive) of a system you need, the most important factor is where you are in the life cycle of your business. If you're in a fast-growing situation, the right strategy is to build for where you're expected to grow as long as your forecasts and expectations are realistic. All the time, we see companies that grow too quickly and have an exciting story that lenders would love to be a part of, but unfortunately, the company is unreliable in procuring a simple income statement or balance sheet.

At the same time, it's important to understand how to scale appropriately, without spending thousands of dollars on tools that may be too robust for your business. With the proper systems in place, your accounting department can shine.


Editor's note: Looking for accounting software to help your finance department? Fill out the below questionnaire to have our vendor partners contact you with free information.


Why proper reporting matters beyond a capital raise

Before we focus on the reasons why a strong finance team is important in a capital raise, let's talk about why it's important for your business. SMB Compass preaches "efficiency by way of transparency." In all our processes and systems, we focus on accountability. A strong financial team leads to a more profitable, stable company, as you'll understand how the various aspects of your business impact your bottom line. Foresight and forecast abilities directly impact your business and the direction it will take in the future. It's much easier to understand future expenses and how they will ultimately impact your bottom line when you can close month-end and year-end numbers in a timely and accurate fashion. 

A strong accounting department can also prevent a lot of mistakes and mishaps. Many companies with a strong reason to exist are ultimately derailed by their inability to identify and improve on their accounting issues. As a business owner or key decision-maker, you should be able to review financial numbers in timely manner to achieve your goals. Weak financial data skews your decisions and actions. You can only make proper decisions for all aspects of the business if you have accurate data points. Your company's ability to report your finances appropriately is tied to the systems and people: If one is weak, the other will suffer.

The impact of your finance and accounting teams on your ability to seek capital

Lenders care about your financial reporting abilities. This should be obvious and common sense, yet we still see situations across all industries and business sizes where it seems like companies don't care about their financial reporting.

There are many reasons why a company would lose sight of this. For a business owner or key decision-maker, it's easy to take your eye off the ball and focus on other important parts of the business. Finances and accounting aren't the sexiest parts of the business. How do you focus on your finance department when you're rolling out an exciting new product to your clients in the next quarter? There's a million similar examples of situations that take away from the focus on your financial statements. A lot of business owners know the importance of it but still lag behind in improving their accounting and finance side. They may continue to see success, but this success is somewhat limited. Let's focus on one particular area where this limits you: seeking a new lending relationship to help grow your business.

Lenders across the board rely heavily on trust. While there's a ton of other factors in underwriting and qualifying for a loan, we're all human; we go off of our gut instincts for decisions big and small. Similar to our earlier statement of data impacting decisions, data impacts trust. How it impacts it is determined by the quality of your accounting and finance units. In situations where there's pristine and clear data (even with financial losses), lenders can find comfort and trust in what they're looking at. The presentation of data, the timeliness of its delivery and reliance of the numbers help build a trust that makes decision-makers at lending institutions feel comfortable lending money. With better reporting and strong accounting teams comes a higher possibility of financing options. This also means that you're most likely working with a lower cost of capital. [Looking for funding for your business? Check out our picks for the best small business loans and financing options.]

On the other hand, if the financial data provided has many holes in it, took months to procure or doesn't reconcile, the likelihood of finding comfort with a lender will be very low. There are options, like invoice financing and equipment financing, that can still provide the capital solutions you need, but they may come at a much higher cost, some of which actually exceed the costs that companies try to cut by understaffing and not investing in their finance departments. As with everything, there's a balance and also a simple art and science to your finance department. You as the business owner or decision-maker understand your business better than anyone. There are times when new $20,000 accounting software is necessary, but other times when hiring the controller with experience in your industry might matter more.

The most important approach is to have self-awareness and the transparency to determine if you're investing appropriately in this crucial part of your business. This decision has ripple effects on your profitability, your ability to borrow money, and your overall level of stress on a daily basis.

Image Credit: AndreyPopov / Getty Images
Matthew G.
Matthew G. Member
I am trusted business financing consultant with $150 Million+ in direct lending experience across SBA, asset-based keeping my clients away from the noise and in front of exclusive business financing options catered to you. While i'm not in the office I enjoy spending most of my time with family and close friends. Whether it be on the beach surfing, or in the mountains skiing, my favorite thing to do is to just be outdoors.