Gaining a better understanding of the need to strategize the finance function will require defining the scope of finance needs. Doing this involves understanding the company’s capacity to meet obligations and handle the day-to-day challenges of being in business. Such an analysis will bear different results for different companies. Small and emerging business owners may find that certain aspects of the finance area are more in need of attention than others. They must understand that an overall finance strategy will benefit the organization most. The following items should be priorities:

- Assessing capital structure. How is the company financed, and how will it be bankrolled in the future? Is the company more comfortable with debt on its books or additional owners? These decisions must be carefully thought out. The question of financing is paramount for the small and emerging business owner as the need to grow is omnipresent. Some of the things to consider if an organization opts for debt financing are debt covenants and cash flow. What types of financial ratios will have to be maintained? Is the finance function adequately suited to monitor these requirements? Will the organization be able to remit debt payments in a timely manner? What are run rates (expense patterns over a given period of time) on expenses and other obligations? The finance function must play an important role in evaluating the ability of the organization to take on debt and the responsibilities associated with it. If the company chooses equity financing, what reporting requirements will it have? Will the organization be subject to audits? If so, how often—quarterly, annually? What are the expectations of shareholders? Will they be met? What if expectations are not met?

- Managing expenses. How well is the organization controlling costs? Companies focus on minimizing expenses as a function of earnings management and cash flow. So how do they do it? Analyzing expenses is a skill that must be mastered by the finance arm of the organization. Can the finance function chart run rates and analyze them for reasonableness? Does the finance organization employ reliable expense ratio (e.g., expense to revenue) analysis? Making decisions about costs in the company are contingent on employing adequate tools to analyze them. When adequate tools are in place and analysis is optimized, setting goals for this aspect of P&L management becomes easy.

- Employing best practices. Does the company know what it is doing right and what it is doing wrong? Employing best practices is more a function of culture than a cookbook, algorithmic process of replacing old ways of doing things with new ways of doing things. It is an ongoing process of evaluating and reevaluating the way a company does business in hopes of always improving. Management takes the lead on this culture or state of mind. If management expects the finance function to improve on what it does now, then the finance function will respond. Maintaining best-in-class closing, budgeting, and data processing is key to an organization girding itself for the changing business environment.

- Measuring performance. For the small and emerging business owner, growth is inevitable for the business to survive. How will the organization monitor growth? Part of the growth strategy is developing and monitoring key measurements (metrics) in the organization. Do these performance measures exist? Are they meaningful? Many times organizations struggle with metrics that are too shortsighted or that work against overall long-term growth of the company. Strong, sensible metrics must be a part of the finance function.

- Planning process. A logical extension of monitoring growth, the budget and the forecasting process must be accurate and easily maintained. The finance function must be adept at dealing with historical as well as forward-looking information. This aspect of finance must be reliable in the near and the extended future in order to develop and maintain a sound overall business strategy. The company must go beyond one-year goal setting and position itself to look three to five years into the future and set reasonable goals. Because strategy impacts the future, the planning process must be at the forefront of all finance-oriented strategizing efforts.

- Analyzing revenue growth. The only thing more important than managing expenses is managing revenues. Although the term managing revenues connotes using less than legitimate accounting practices, the goal is to make the company’s revenue streams as predictable as possible. This is crucial when planning future resource allocations or communicating performance to stakeholders. Can the organization analyze revenue quickly and accurately by geographic region and product type? Can revenue be tracked by salesperson or territory? Can recurring revenue be tracked by customer? Should the company stick with organic (internally generated) revenue growth models or seek acquisitions? The finance function should be equipped to analyze and consult management on the status of revenue growth in the company. Strategies must be in place that facilitate the examination of revenue.

- Maintaining a strong finance team. The preoccupation with maintaining in formation systems, upgrading processes, and meeting prescribed deadlines can make it easy to lose sight of the people aspect of finance. Technology and best practices will never eliminate the need for the human element. The skills of finance staff must meet the needs of the business, needs that may stay static or change over time. For example, in the early years, when the business is small and money is in short supply, the need may be for accountanttype staff to simply “pull” the numbers together each month and report them to management. As the company evolves, finance staff will need to be more systems savvy as the development of finance applications and sophisticated platforms may be the objective. At a more mature stage of the company’s existence, the need for true finance people who are more economic and business oriented may predominate over pure accountant types who sufficed in the early years of the business. Knowing these needs, how is the company positioning its pipeline of talent? What types of programs are in place to not only bring suitable talent in house but to retain and develop it?

Small and emerging business owners must determine those areas of finance on which to leverage growth initiatives. Being aware of strengths will allow them to better construct finance strategies. Note that this is different from merely identifying weak areas of the finance function. An example of building a growth strategy off a particular area of finance is illustrated with Brewco:

Brewco is a publicly traded company that manages a nationwide chain of microbreweries and restaurants. The swiftly moving, brand-oriented restaurant business compelled Brewco to seek out a growth strategy that would appeal to internal (employees) and external (external investment community) stakeholders. Two key components of Brewco’s strategy involved methodologies for acquisition accounting and a generous employee stock option compensation plan. High market capitalization (shares outstanding   share price) was the trophy metric in the race to maintain top-dog status with the investor community. Through its use of the pooling method of accounting (recently banned by the accounting industry) for business combinations, the company was able to legitimately put nearly 4 billion shares of its stock into circulation. As a result, small ticks in share value had an exponential effect on market capitalization, making it an in-demand stock by the market community. Brewco also employed a stock option compensation program for employees that enabled it to avoid taking a charge to its financial (book) earnings while taking a charge (deduction) to tax earnings. This action allowed the company to manage wage expenses going forward, minimize the amount of federal taxes paid, and issue more stock.

The versatility in the option program provided an attractive, noncash compensation avenue for the company that provided the best of both worlds from a financial standpoint. This example of researching, conceptualizing, and employing a win/win strategy (born from the finance function) for company shareholders and employees is a testament to the forward-looking prowess of the leadership at Brewco