There comes a point in time when a successful entrepreneurial founder must decide to scale up or continue on a steady growth trajectory. Typically, they have established product-market fit, have been through early-stage funding, and face the prospect of another funding round to accelerate at speed. Scaling up is not a natural next step in business growth - it requires a deliberate focus on planning, management, mobilising resources and a strong team of advisers to expand resources incrementally while creating rapid revenue.
“Scaling up is not a natural next step in business growth - it requires a deliberate focus on planning, management, mobilising resources, and a strong team of advisers to expand resources incrementally while creating rapid revenue.”
If choosing to scale, founders must prepare the business to:
- Attract and retain key talent
- Implement systems, tools and processes that standardise, automate and achieve scale
- Secure the right investors.
This is a critical milestone on the start-up’s journey and while it can be challenging, the result of scaling successfully is rapid growth without placing pressure on business functions. When deciding to scale, outsourcing of key business processes has several advantages. In this article, we outline the challenges of scaling and how outsourcing business processes can help.
What are the challenges of scaling a business?
The problem is often not that the business is unable to scale, but that they scale too fast and their resources are unprepared to do so within a short time frame. Further, as management teams need to take time out from business operations to focus on capital raising and appointment of key hires, financials can take a dip.
The key thing for founders to remember is that they can’t do everything themselves. Instead, they need to focus on areas of the business where they can add key-value and outsource or bring in new layers of management to assist in areas where they need support.
A clear strategic direction can ease the load on founders, allowing them to prioritise areas that are core to their growth. Identifying which opportunities to pursue is critical, keeping in mind the business’ critical path to growth, to conserve resources.
What areas should a founder look to outsource?
1. Finance - setting the stage for growth
For many start-ups and scale-ups, funding is typically their primary issue. The main challenges are tied to the business cash flow and finding the right capital funding. It’s important to undertake forecasting and modelling for a capital raise process. This will allow you to assess the drivers of your business and the best sources of capital. This will also give you an idea of how much you need and at what timeline you can acquire new resources while providing confidence to your investors.
At this stage in your business lifecycle, finances become more complex and time-consuming. You may find you outgrow your regular accountant and need focused financial support across a broad range of tax and accounting specialties. Foregoing these key financial aspects risks losing value creation and also may result in issues in the long run - such as inefficient tax structures costing millions of dollars to fix.
Therefore, a key adviser to consider is a CFO. While a start-up may not be ready to bring in a full-time CFO, an outsourced CFO is a good option. They can help you manage all facets of the finance function.
Some of the most common areas that our outsourced CFO function assists businesses with include:
- Tax structuring for local and international expansion - getting it right from the outset
- Implementation of Employee Stock Ownership Plan (ESOP) for talent and founders, and understanding the tax and reporting implications for both the business and the recipients
- Effective and dynamic management and board reporting
- Ensuring across-the-board compliance in a highly complex compliance environment
- Facilitation and assessment of grant eligibility
- Preparing the financial reporting function in readiness for a liquidity event
- Share register, capital table, and corporate secretarial management
- Generally being a sounding board for founders who are trying to balance existing business operations whilst maximising opportunities for expansion
- Positioning businesses in the best light for a successful raise.
2. Human resources - attracting talent and retaining your culture
Once you have the right backing in place, it is important to not only find the right talent, but set the foundations to retain them.
As organisations grow, HR needs to move from getting the basics right and being ‘compliance driven’ to a more strategic approach, managing and growing people alongside the business. This allows leaders to focus effort on attracting and recruiting people with the right mindset and skills to drive the business forward. This type of HR is initially more operational, allowing the HR function to scale to be a strategic partner within the business, where people and their capabilities are what sets your brand apart.
When scaling up, attracting talent and retaining culture can become a key issue. A founder’s focus on commercial success and growth can be all-consuming, and whilst they may realise the needs of people are changing and that a cultural shift is occurring, they may not have the time, or the know-how to focus on these issues. A virtual (outsourced) HR specialist can help prepare founders for several changes within the business aimed at improving productivity, retaining talent, lessening the administrative burden and minimising risk.
At BDO, our People Advisory team can also help with:
- HR strategy
- HR effectiveness
- Leadership development
- High performing teams
- Change management
- HR culture reviews and development
- Post-merger integration
When is the right time to engage an advisory service?
Outsourcing critical business functions like HR and Finance to experienced advisers can help with business focus, the scaling process and take pressure off busy founders, allowing them to focus on what they do best. An adviser also offers new expansion and partnership opportunities leveraged through existing relationships, experience, and network that an external advisory provider can deliver.
Timing depends on your adviser and how much goodwill they are prepared to show you.
At BDO, we are happy to speak with businesses early on in their journey to help them prepare in the right way with adequate infrastructure. When they’re ready, we introduce the opportunity to the right investors.
Looking to scale your business?
Our Private Equity specialists can draw on our experiences, relationships, and market-leading sector expertise to create a ‘virtual’ team for our clients’ needs and particular market. Contact us to find out how BDO can help your business scale.