After a company proves it’s capable of surviving and has the potential to become something bigger and greater, it may start acting less like what you’d think of as a small business but not yet an enterprise. Leadership may consider another way to categorize the company as they seek out advice and partnerships with service providers, look for funding opportunities, and consider strategic moves. As your company considers possible business growth strategies, you may want to explore whether you consider your business to be a startup, a small business, or a growth company. Or do all of these labels apply?
What Is a Growth Company?
There are multiple ways to define a growth company, but generally a growth company has at least a handful of employees and loads of potential, and its founders and executives are starting to make moves toward more strategic growth, which will require developing or solidifying the financial foundation on which the business runs. They may already have the backing of investors and are preparing for another round of funding. They have strong ideas of how far they want to take the company. They may also realize they need more resources to continue growing, but are open to nontraditional ways to tap the level of expertise needed to keep the company’s growth moving in the right direction.
Can Your Company Be an Emerging Growth Company and Smaller Reporting Company?
When some people hear “emerging growth company,” they immediately think of the U.S. Securities and Exchange Commission’s definition. For emerging growth company eligibility, the company’s total annual gross revenues did not exceed $1.07 billion in its most recent fiscal year. Such companies retain this status for their first five years of being a publicly traded company unless their annual gross revenues go past the $1.07 billion mark, they issue more than $1 billion in non-convertible debt in the course of three years, or they becomes a “large accelerated filer” under the SEC’s definition.
Why would you want your company to be an emerging growth company under the SEC’s eyes? Mainly it’s because these companies are not held to the same stringent financial reporting rules when going public as larger companies. They can put off getting an auditor attestation of internal controls over financial reporting, they have less extensive narrative disclosure requirements, and they can provide one less year of audited financial statements.
Can your company be an emerging growth company and a smaller reporting company? Yes, from a regulatory standpoint, your growth company can fall under both categories, although this usually matters only if you plan to pursue a public offering.
How to Succeed as an Emerging Growth Company
As you rightfully consider small business growth strategies, you may find, with a close assessment by growth consultants, that your company has advanced to the “emerging growth company” status and that it is time to take your financial operations to the next level. When your company is operating on a solid financial foundation, it can build upon it for scalable, smart growth. This entails having the type of accounting systems and processes, and layers of the finance function, that align with the company’s level of activity and promise.
For the sake of company growth, you also need a firm grasp of how the company is performing and see how that matches up with your assumptions, and make adjustments as needed. Is your emerging growth company operating on sound information, or is it time for a reset in the finance function?
RoseRyan can help you evaluate any weaknesses in the financial operations, implement improvements, and help your company continue to rise upward. Reach out to our finance consulting experts today.