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The 4 stages of the business lifecycle and how to recognize what you need next

Many companies tend to follow similar patterns as they adapt and change over time. The trajectory is known as the business lifecycle, and we’ve identified four particular stages that companies typically move through from beginning to maturity. Knowing where a company lies along the lifecycle is critical for truly understanding its current and future finance needs.

Like humans, businesses have a growth track they follow as well as a constant pull to reevaluate who they are and where they’re going. As companies grow from the small-business stage and expand and evolve into fully fledged ongoing enterprises, they have to adjust to increasing demands and the rapid pace of change around them. And they need to constantly reinvent themselves to stay competitive.

With all these points in mind, we constructed our view of the stages of the typical business lifecycle and the different finance challenges that occur at each stage. Is there a pressing need for a huge ramp-up? Could an IPO give the company the boost it needs, or will it remain private indefinitely? Companies go through existential crises all the time, from startups cobbling together basic funds and a tight team, to large public companies facing pressures at a global level. The lifecycle is a useful map for the potential future journey of a company, and can help evaluate whether the finance team’s resources can keep up with all the changes and demands.

Here is our take on the four stages of the business lifecycle:

Start: The first stage of growth involves balancing the fight for survival with getting the small business up and running. It’s just a few employees forming a solid team, gathering funds together and developing a sellable product at warp speed. Many startup companies haven’t gotten around to setting up their financial infrastructure yet. They may need to lean on outside sources before they bring on full-timers.

Grow: This is the time of building the business rapidly to scale. It’s all about managing high growth on this rollercoaster, and potentially chaotic financial messes. Many companies need to rapidly set into place new organized processes and systems to get their financial house in shape and ready for the prying eyes of investors, auditors and potential acquirers.

Expand: Here is when companies move on to a whole new strategy for growth and it usually involves a big transaction. They may buy another company, merge or go for an IPO. What’s missing at this stage at times is a plan for traveling through it and getting through the aftermath. Most companies underestimate the work and amount of change involved.

Evolve: At the fourth stage, the mark of maturity, ongoing businesses hit a barrage of change at every turn, from high pressure by competitors, investors and customers to unpredictable business crises. They frequently need to reinvent themselves to stay a winner.

What keeps companies in motion? It won’t surprise you to hear that I believe the success of any company rides a lot on the strength of its finance team. With a solid financial infrastructure in place and access to just the right talent at the right time, the company can keep humming and stay on top of all the requirements. By having a strong financial backbone, with efficient systems and processes, companies can focus on strategic changes that will push the business forward. Those are the ones best poised for success.

At RoseRyan, we reflect upon each client and where they are in the business lifecycle, to best anticipate what services they might need most. Companies appreciate our experience—having helped hundreds of companies through each stage—and trust us to get them through it quickly.

For more about how RoseRyan helps across the lifecycle, go here.

Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.

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By embracing data analytics, CFOs can keep their status as strategists

CFOs’ résumés are getting longer and more complex. Naturally they are the stewards of the company’s finances and the operator of the treasury, financial planning and analysis, accounting and tax functions. Now, they are also embracing being strategists and catalysts. This is according to Kathy Ryan, CEO and CFO of RoseRyan, and Myles Suer, senior manager, CFO solutions, at data integration company Informatica. Ryan and Suer recently tag-teamed as speakers on a webinar about “Analytics and Data for the Strategic CFO.”

“It’s increasingly important for CFOs to be strategists, who help shape the overall strategy and direction of their company, as well as catalysts, who instill a financial approach and mindset throughout the organization to help other parts of the business perform better,” Ryan said during the event. “These varied roles make up a CFO’s job today and make it more complex than ever.”

Successful senior finance executives have made their careers by embracing the tough stuff. They rose to the challenge following the regulatory reforms in the early 2000s and were really able to show off their skills during the Great Recession of 2008, when their expertise was needed to not just keep companies afloat but to get back on track.

Now that the recession continues to fade in the rearview mirror, CFOs need to keep the respect and elevated status they gained in recent years—where their opinion and insights are more valued than ever—intact. “The strategist and catalyst are newer roles that came on very strong during the recession, and CFOs, in my opinion, should not relinquish these roles going forward,” Ryan advised.

A key way to keep the momentum going? Get a better grip on the data that finance teams have at their fingertips. During the webinar, Ryan and Suer emphasized the uphill battle facing CFOs to accomplish that goal. As it is, manual processes still reign at many companies, and many finance organizations lack the skills needed to make sense of all the information. “Data collection is messy,” Ryan said. “A lot of data comes in through separate and distinct sources, in differing formats, and it requires a lot of knowledge to even know how to think about trying to organize the data, much less try to analyze the data.”

The motivation to improve is there, Suer said. He cited a KPMG study reporting that two-thirds of finance chiefs said their enterprise technology platform is duplicative, complex, and the financial information they pull from it for making decisions could be more useful. And three-fourths of CFOs want to do something to fix it.

“When we talk to CFOs, data is really at the heart of everything they do,” Suer said. “They have to be able to control better the integrity of the data. What we found is what was driving CFOs so much toward manual processes was that they didn’t trust the data from each and every source, so they would either manually pull it, condition the data and push it into the next systems if they had multiple GLs, or they’d be constantly massaging it and moving it around.”

The good news: The CFO position can be more gratifying than ever. Finance chiefs are no longer pigeonholed as narrow-minded accountants in the backroom but are more and more being included with other strategic leaders whose observations and analysis can influence future directions. The not-so-good news: it is hard work and it’s not made any easier by increasingly complex business models, changes in accounting rules and regulations, and unwieldy IT systems with data that can’t be fully relied upon. CFOs—those sticklers of data with integrity—are in a tough spot.

Suer suggested that CFOs who want to be considered “data driven” and strategic should:

  • Improve data quality at every source
  • Break down application silos and integrate data across sources
  • Automate the movement and consolidation of financials based on good data
  • Slice granular consolidated financials for better analysis
  • Manage the governance and access to data

“In an ideal world, data should be entered into a system only once and be accessible to address many, many different queries from many people within an organization,” Ryan said. “The more often data is entered in different ways, the more likely it is that the data won’t be consistent, and not having consistent data will quickly undermine the results.”

For more insights on the CFO role today, watch the replay of “Analytics and Data for the Strategic CFO.”

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5 tips for audit prep: Set yourself up right and ace it

Getting your year-end audit completed can be an uphill slog or a fairly smooth process. Much of the outcome depends on the work you can put in ahead of the auditor’s visit. This may seem like an obvious point, but time and again we have seen companies—some that are undergoing their very first audit and those that have been through it many times—drop the ball.

They won’t have the documentation the auditor needs, and they’ll have to scramble. But the auditor may not stick around to wait for you. If you’re unprepared, you go to the bottom of the auditor’s pile. If you have to start over, the original auditor may no longer be available, and you’ll have to answer a lot of the same questions from the second one. The result: You have unnecessarily increased the cost and length of your audit—and the hassle.

Creating a collaborative relationship with your auditor early on and staying in communication are key points. The better you understand the audit firm’s approach to your accounting issues, the better off you’ll be. Help yourself and your auditor by following these tips.

1. Be a PBC list cutter

In preparation for an audit, the audit firm will typically develop a PBC (prepared by client) list of schedules and other documents the client needs to provide for the auditors. The number of items on the list depends on several factors, including whether this is your company’s first audit or first experience with the audit firm and how knowledgeable the audit firm is about businesses like yours.

To keep your PBC list as short as possible, talk with the audit firm before it prepares the list to identify and agree on which items aren’t applicable. Meeting with your auditors before the PBC list is finalized—and educating them about your business, if necessary—limits surprises and helps establish a good working relationship.

2. Be an efficiency zealot

If you’re the type of person who won’t settle for less than the very fastest route to any destination, including the dairy aisle in the grocery store, planning your audit should be no sweat. Everyone else will have to incorporate some extra effort, such as by making a point of designating one person—if possible, someone with an audit background—to coordinate the audit and liaise with the audit firm. This person doesn’t need to prepare and compile all the requested audit information; instead, the coordinator should assign those tasks to the people with the deepest knowledge of and easiest access to the relevant information. Your auditors will appreciate having a single point of contact to track the delivery and status of the audit documents.

3. Be realistic about time

The team involved needs enough time to prepare for the audit. For first-time audits or audits with unresolved accounting issues, figure on at least eight weeks. The least complex audits—for example, those in which the company has regularly maintained accounts and has resolved any issues before the audit or during previous audits—could require as little as two weeks. And keep everyone in the loop on the schedule.

4. Be ready or expect to wait

Don’t initiate the audit until the prep work is complete. Some companies prepare a portion of the audit schedules and have auditors begin the audit because they believe they’ll have the remaining schedules ready before they are needed.

But remember—your team will be busy answering auditors’ questions about the first batch of schedules. So when you fall behind on the second batch, the auditors will be sitting around your office with nothing to do, which costs you money.

5. Be your auditor’s BFF

Remember that auditors do their best work for you when you treat them as your trusted business partners. That means raising and discussing potential issues before they come on-site, and making yourself and your audit team available to answer their questions throughout the audit.

We know from experience that prepping for and completing your audit can feel like climbing Mount Everest. For more tips that will help level the steepness of the journey, download our intelligence report, Audit time? Don’t sweat it, and find out how the lack of preparation can have a direct effect on the business.

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It was high time the FASB eliminated ‘extraordinary items,’ and they finally did

Companies will no longer have to call out extraordinary items on the income statement following the Financial Accounting Standards Board’s recent issuance of an accounting standards update. This change, which affects transactions that are considered both unusual and infrequent, goes into effect for fiscal periods beginning after December 15, 2015.

As someone who has been on all sides of the fence having to decide how to account for these items (I have been an auditor, CFO and investor) I must admit I am not sad to see the separate accounting of them, located after Income from Continuing Operations, and net of tax, go away. I have always felt that accounting for extraordinary items the way we’ve had to is, well, kind of extraordinary!

My reasonings for thinking this way are twofold. First, I am a strong believer in simplified accounting, and this change definitely simplifies the accounting. Second, in my view anything to do with your continuing business should be accounted for as an integrated part of your continuing business, and just because a transaction is unusual and infrequent does not give it the right to be accounted for separately.

My definition of unusual and infrequent may be different to yours, and that’s the problem—the rules that have been in place have a significant element of subjectivity to them. To me, accounting for extraordinary items has been very similar to applying soccer’s offside rule. Under that rule, you are not offside if you are not interfering with play. That’s a very subjective judgment, and your view of interfering in a situation may be different than mine. I acknowledge that I am a little extreme on this—to me if you are on the pitch, you are by definition interfering with play. That’s probably a big reason why I never became a referee!

I once had a very long debate (you could also call it an argument), with a Big 4 audit partner over whether a transaction was an extraordinary item while I was the CFO of a public company. The discussion lasted a week, and in the end the partner punted it to another partner who ended up agreeing with me. I’d like to say it was a win for me, but we had both wasted hours discussing this issue.

Adding insult to injury, I couldn’t believe it when the partner subsequently tried to bill me for the time we spent discussing it. As you can imagine, that created another discussion. I finally got the billing eliminated, but what a waste of time and effort. I am sure many others have had the same experience as me. The good news is that no one will have to again when the new rule changes come in to play, so hopefully a side benefit will be that audit costs will come down a little as well.

By the way, when this rule change goes into effect—making extraordinary items no longer necessary—US GAAP will match IFRS rules. Yes, the continuing operations section of an income statement will look more lumpy, but it will reflect better what is going on in the business, and that is what accounting should do and all we can ask it to do.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies.

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Hot topics for finance departments in 2015

There’s a tension for finance organizations that go public. Throughout the year, they are faced with new rules from accounting standard-setters, new guidance from accounting firms and new direction by regulators that could affect them directly.

Last year was no different as the Financial Accounting Standards Board issued 17 Accounting Standards Updates (ASUs), up from 12 in 2013, including a real biggie (the new revenue recognition standard), and the regulators continued to be active and forceful. On top of this, privately held companies are getting more rules sent their way, and an increasing number are considering whether they too should get involved in the public markets.

No matter where your organization lies in its cycle—whether you’re in a startup or a fully fledged publicly traded company past the early, shaky days of trading—you have many issues to face in the coming year as your team puts together its financial reports and communicates with investors. Here are recent changes you should keep in mind, depending on your situation:

Taking on the new revenue recognition rule: By now companies should be past the evaluation stage and their plan to implement should be nearing completion. They should start tracking their transactions to see how they’ll play out under the new guidance.

Until formal adoption in 2017, companies must disclose the anticipated effect the new standard will have on their financials, so knowing the magnitude of the change is a critical initial step. It could lead to adjustments in processes and affect how contracts are drafted. Moreover, companies need to have this type of data around now to decide whether to adopt the standard retrospectively (which will include 2015 financials) or prospectively (beginning January 2017).

The entire endeavor will go beyond the finance department. As we saw with the implementation of the previous revenue recognition standard, possibly business practices and certainly revenue accounting processes and systems will need to adapt to record revenue transactions correctly.

Simplifying matters for private companies: The good news for private companies is FASB’s Private Company Council (PCC), now a year into its Decision-Making Framework for determining the situations when private companies can use an accounting alternative, issued four PCC-consensus ASUs in 2014. With the goal of simplifying accounting and reporting for private companies, these new ASUs should reduce private companies’ cost of compliance.

      • 2014-02: allows private companies to evaluate goodwill impairment when a triggering event occurs rather than annually.
      • 2014-03: provides a simpler method of accounting for derivatives.
      • 2014-07: provides a simpler alternative than the variable interest entity (VIE) model for accounting for leases under common control.
      • 2014-18: hot off the FASB presses in time for Christmas, this ASU simplifies private company accounting for intangible assets acquired through a business combination.

Preparing for public-company life: Depending on your viewpoint, there has been a positive effect of the reduced reporting and SOX compliance provisions from the JOBS Act in the increased number of IPOs in 2014 (a 44% increase over the number of 2013 filings). And IPO and follow-on public market financing activity don’t seem to be tailing off so far as we start 2015, particularly in the Bay Area.

But before private companies rush to Wall Street, they need to remember that despite a one-year exemption from the requirement to have their auditors sign off on SOX, management must still include their own assertion regarding internal controls in SEC reports beginning with the second 10-K and will want to have effective internal controls way before then. The auditors will still want to get comfortable in knowing management is doing what they say they’re doing. (For more about braving the new world as a post-IPO business, see our recent intelligence report, Ensuring a smooth ride as a newly public company.)

Getting ready for the audit: Finally, the auditors also received their own flurry of new rules and warnings from the Public Company Accounting Oversight Board in 2014. Companies will end up feeling the effect as those changes trickle down, leading auditors to deepen their focus as they review certain accounting methods. The PCAOB has stated the new audit requirements and alerts were issued in response to insufficient audit procedures in areas that have a higher risk for misstatements and the incidence of deficiencies.

There is a new audit requirement surrounding transactions and financial relationships with related parties, including executive officers, as well as requirements that strengthen the auditing of significant unusual transactions.

Two new practice alerts were issued in the fourth quarter of 2014. One dealt with auditing revenue, specifically testing recognition and timing, evaluating the presentation (gross vs. net), internal controls, and the risk of fraud. Additionally, the alert addresses the application of audit sampling and analytic testing procedures.

The second alert reminds auditors about PCAOB standards related to auditing “going concern” with regard to the application of updated accounting and reporting guidance. The PCAOB’s agenda for 2015 includes a project to consider updating the auditing standard.

Companies will still need to be ready for the increased scrutiny by the auditors of their 2014 results as a result of the alert issued late in 2013 that seemed to sneak up on them as they went through audits last year. Be ready for testing of review controls, controls over system-generated data and reports, and management’s evaluation of identified control deficiencies.

We all recognize that the pace of change keeps accelerating and isn’t likely to slow down in 2015. Staying on top of what’s new and what applies to our specific situation requires quite a bit of focus. It is part of what makes your finance and accounting folks such valuable members of the team.

Julie Gilson is a senior consultant with RoseRyan and a CPA (inactive) with over 15 years working in finance and accounting with fast-moving public and private technology companies.

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Jacqueline Bray receives RoseRyan’s highest honor: The 2014 TrEAT Award

We are excited to share the news that Jackie Bray has received the 2014 TrEAT Award, a coveted recognition within RoseRyan. She is the fourth annual recipient of this award, which honors a guru who has best exemplified our firm’s values (Trustworthy, Excel, Advocate and Team) throughout the year.

The RoseRyan management had the tough task of deciding who out of 40 nominees made the biggest standout contribution in 2014. “Being able to juggle various deadlines and clients while always being responsive and keeping cool under pressure is a real art,” says RoseRyan CEO Kathy Ryan. “Jackie does this with reliability and grace.”

Because of the stiff competition, Jackie, who specializes in general accounting, was surprised to hear her name called at the RoseRyan holiday party when the winner was announced. “It was a nice feeling—it was humbling — that the nomination can come from anyone at the company, not just a manager,” she says. “That makes it special for me.”

When deciding whether to join RoseRyan in 2013, she was won over by the firm’s values, which the firm’s managers and consultants not only talk about but truly follow. They matched her own, and she knew RoseRyan would be a good fit.

A sweet TrEAT
The RoseRyan TrEAT award was established to acknowledge the importance of the our cornerstone values as the foundation of our business, and honor the individual who exemplifies those values. It is the highest honor we can award an individual. This year, we awarded Jackie with a beautiful, one-of-a-kind bowl. It’s perfect for displaying some treats or for admiring as is.

Jackie fulfills the trustworthy criteria by always meeting her deadlines and deliverables, even when (inevitably) something unpredictable creeps up or hot issues hit more than one client at once. She excels by meeting her performance metrics and being willing to go beyond her comfort zone to expand her skills. And she is an advocate for the firm by providing valuable feedback and recommendations to the RoseRyan client management group.

And last but not least, Jackie is a strong team player for her ability to build good relationships with clients and her colleagues as well as for the fact that she can be consistently relied upon to provide excellent work.

Indeed, Jackie manages a four-client workload with finesse, and she has the full force of the collective intelligence of RoseRyan’s seasoned pros at her fingertips. If a client has an unusual question, Jackie knows she can get the answer—she just needs to turn to her colleagues to see who has encountered a similar situation (since our dream team members have been on a wide range of assignments, usually several chime in to help).

RoseRyan has given her access to a diverse and flexible workload with the support of knowledgeable colleagues she can turn to anytime. “When one of us is with a client, we are never alone,” Jackie says. “You truly do have a whole team behind you.”

Congratulations to Jackie Bray!

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Full steam ahead for 2015 and beyond

Halfway through the decade, with the Great Recession slipping farther and farther into the rearview mirror, corporate leaders are pushing onward and upward. Nowhere is this more evident than in the San Francisco Bay Area where a lot of attention has shone on activities within the tech and life science sectors. In business, there is never enough time to waste and anyone who lingers at a standstill for too long will get left behind.

In the Bay Area, we’ve seen a higher eagerness for forward movement over the past year as well as more forward-thinking actions. Small companies that had held a tight grip on lean finance teams are expanding. Larger companies are soul searching and making positive strategic changes. And to top it off, the IPO market is incredibly active (2014 saw the highest number of companies going public since 2000, according to Renaissance Capital).

We are not quite returning to a heyday and I don’t think we’re in a bubble, but it’s much easier to find bright spots than when this decade first began. As for RoseRyan, we are enjoying much forward momentum too, having made investments even during the turbulent times. The outlook for RoseRyan is a positive one for the year ahead as we continue to see opportunities for growth within our own client base as well as with potential clients.

A memorable year
One of our proudest moments in 2014 was the introduction of our RoseRyan Day 2 service, created for companies struggling to get everything done properly after their IPO. The early days of working at a publicly listed company is an exciting time, but it’s also a shaky time, as the organization has to adjust to new processes, new requirements and the constant prying eyes of investors and regulators. They need to be more careful and watch out for inconsistencies in the information they share and how they share it. This puts the onus on the finance department.

We enjoy helping finance teams power through the challenges of what we call “Day 2,” that one- to two-year stretch of time between the IPO and and when the company is actually comfortable acting like a public company. There is a lot to do.

Some companies are taking on a transition of another sort altogether, as they look under the hood and consider whether something within their infrastructure is holding them back. We expect the trend of spinoffs and splits to continue following on the heels of big changes at Hewlett-Packard, eBay (which is spinning off PayPal) and Symantec. When done with great care, such divestitures can position a business for greater mobility, innovation and growth.

Another signifier of an increased focus on the future — rather than a stuck-in-the-mud feeling wrought by the recession — shows up in the job market. People are more confident about switching jobs, and there are more opportunities for them to make the change. This development is a good sign for our local economy (as well as for our own interim finance services pipeline), but it does make the life of hiring managers more difficult. In the finance and accounting world in particular, we continue to face a tight market and we all need to rethink how we attract and keep top talent. It’s certainly a job seekers’ market out there.

At RoseRyan, our standards for seasoned finance pros continue to remain high, and we have the kind of reputation that continues to attract the talent we need. In the fall, I was honored to be recognized as one of 10 elite managing partners from around the country by Accounting Today for having the kind of “employee-friendly firm that so many leaders are struggling to build now that engaged, enthusiastic staff are at a premium.”

Over 20 years, we have set up a culture of fun-loving folks who have a passion for what they do and the means to collaborate and learn from each other. And we do it without the round-the-clock pressure that some larger firms run on. Our work shines because of our experience and our enthusiasm, and I share my inclusion on the Accounting Today Managing Partner Elite list with my RoseRyan colleagues.

Successful businesses will persevere by keeping their focus on the future, rather than lamenting on what they see in that rearview mirror. We have our eyes on the future. Will you be joining us?

Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.

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