Don’t Rest on Your Laurels in a Strong Economy
Imagine it: a South Florida technology firm gains backing from major venture capitalists. The company created a marketable product that’s in demand. Now, with plenty of cash, the aggressive hiring of support personnel begins, complete with big salaries and nice perks.
As time passes, it becomes obvious that something is amiss. Expected client contracts are delayed, as were the revenues associated with them. Burdened by overhead, liquidity is burned through at an alarming rate. The company had hired the best support professionals, paying top dollar without first planning how the optimal support infrastructure should look. As a result, strategic professionals are stalled out, not performing necessary analyses, but performing mundane processes while critical growth initiatives wait on the back burner.
Effective management of general and administrative expenses focuses on not only doing things better but doing better things. By understanding the current support infrastructure demands while building an organization, a company can gain insights to adapt to future needs. What processes can be automated to improve the cycle? How often should forecasts be generated by the finance team?
Three areas stand out when optimizing the corporate infrastructure:
- Create the future state operating model from the start
Because organizations change constantly, businesses can benefit from the development of future state operating models. Defining anticipated infrastructure needs (not wants), prioritizing those needs and then discerning the capabilities required to meet the needs sounds simple, but it’s often an overlooked step.
Future state operating models are meant to be flexible enough to support the next generation of demands. Having pre-defined placeholders can help establish an effective, adaptable and scalable operating model that can grow with the company over time. While sales and work outside of your walls are important, conscientiously developing and analyzing internal infrastructure can pay off in the long-term profitability of your business.
For example, accounts payable and receivable are vital functions of any organization that executives sometimes want to deeply analyze. However, devoting high-level finance executives to those analyses may not be the wisest investment for the organization. Are employers asking too much to do the deep dive? With the added demands, a higher-level and more costly employee would be required. The payoff may not be great enough to warrant the added expense.
- If your operating model is broken, fix it
Is your company looking to be a niche player with a few offices? Is it growing through acquisitions while keeping a centralized structure? Could a shared service structure that integrates acquired support functions help support growing client needs?
Again, if you create your business model with the end-state in mind, infrastructure can be designed to balance the need to standardize versus specialize. It can also help you focus on quality versus cost containment.
If an acquisitive company combined its acquired finance teams, accounts payable, for example, could be standardized and other aspects of financial planning and analysis could remain specialized. Standardization can help to lower risk and improve efficiencies. Specializing enables customization of output to help meet internal business units and customer needs. Because accounts payable typically should be centralized, some functions, such as human resources’ recruiting, can remain decentralized to achieve greater flexibility within local markets that have quicker through-put.
- Measure, monitor and adjust
If your company is facing aggressive growth during today’s healthy global economy, creating an execution governance framework to measure and monitor results is critical to continued success. Implementing analyses like scorecards with key performance indicators, derived from leading peer group metrics, can help you ascertain how your organization measures up against your plan and against peers.
By using an execution governance framework, accountability and decision rights can be created for different professionals and operating centers. Rewards and consequences are wrapped around the program to drive the desired professional behaviors.
There’s no time like the present—in this current economic climate—to ensure that your organization is growing in the right direction and with an infrastructure that can help support future growth.
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Scott Schneider, CPA, CFA, CIRA, is a director of business consulting services in Kaufman Rossin’s Miami office, where he provides financial and operational advisory services to companies and their lenders, investors, and other stakeholders. Kaufman Rossin is one of the Top 100 Firms in the U.S. Scott can be reached at sschneider@kaufmanrossin.com.
