Every business is on a journey. Some journeys end up being much shorter than anyone would like, while others can be long and rewarding in many respects. Taking stock of where your company is in its journey—also known as the business lifecycle—can help you fine-tune your strategic roadmap, take a detour if necessary, and keep zooming ahead to reach the company’s full potential.
What Are the Stages of the Business Lifecycle?
At RoseRyan, as we tailor our finance and accounting solutions to the unique needs of the companies we work with, we’ve identified four stages in the business lifecycle and the typical developments and needs companies undertake at each stage.
Launch: Companies that have managed to push past their initial introduction to the world are establishing their foundation. They need systems and processes in place that can put them on solid footing, and guidance as they make all sorts of decisions, from funding and managing resources to getting their financial operations established.
An outsourced accounting team can set up the company with a fully integrated tech stack, get the financial house in order, and put the company on the path toward producing credible, timely financial information for smart decision-making.
Usually not quite at the point of needing a full-time CFO, companies at this stage often do need CFO-level advice and support to advise them and act on their behalf when reaching out to investors and dealing with the board. A wrong strategic move at this stage can take a company wildly off-course and slow down its promising pace.
Scaling up: The challenges become complex as a company continues to hire and consider new strategies, and the accounting and finance demands grow. Companies at this stage are scaling up while also trying not to burn out. CFO expertise is vital at this stage to achieve this balance.
When a financial challenge comes up, a talent gap on the team opens up, or a strategic project needs additional skills for completion, companies at this stage need to know where to turn quickly. Outsourced finance pros can be a critical lifeline to keep everything steady within the core finance organization while everything is moving at a fast clip. They can address technical accounting issues, weave financial integrity into the company’s reporting structure, lead the company through its annual external audit, and more.
Go beyond: Here’s where transformative transactions are pursued and resources and skills are tested. Preparing as much as possible for the change ahead and knowing where to go when knowledge and experience are limited during this stage in your business lifecycle is a must.
There’s very little time to ramp up the team and streamline operations when the company is going after a big change, such as an IPO, a SPAC merger, or acquisition. Consider the due diligence that’s required with any one of these transactions, and the integration challenges of combining forces with another entity or transitioning to becoming a newly public company. Being ready requires inward assessments and changes to processes to be able to withstand increased scrutiny from investors, auditors and regulators, and to be SOX ready if going public.
Whenever possible for the before, during and after of these transactions, you can rely on experts who have led teams through similar experiences. They can bring best practices and practical advice straight to your team while also taking over some of the responsibilities that could overwhelm your already busy team.
Summit: Even if you reach the peak of your company’s latest strategic goal (i.e., you’re running a well-established public company), there is always more work to be done and other goals or adjustments to be made.
The increased complexity involved with a maturing company, new compliance requirements, and unforeseen circumstances can lead to the need to make significant adjustments, such as restructuring, divesting a business unit, or conducting a spin-off.
Making the right decisions along every step may require a team of outside experts to get it done right, while the company resets itself and finds its footing again.
Understanding the Business Lifecycle Stages and Your Next Steps
Whether you’re at the beginning of the startup lifecycle or your company lifecycle stage involves heading toward the exit, the challenges you’re facing can put a tremendous strain on the team. At various times, you’ll realize you need to bring in outside skill sets, perhaps on a temporary basis.
Having helped more than 1,000 clients over the course of nearly 30 years, we have seen and done it all, and can help. For example: While a company about to go IPO may have few if any staffers who have gone through a similar experience, we have consultants who can step in and help the team catch up on what’s needed to prepare and get through the offering—and be a smooth-running company on the other side, fully ready for the new reporting requirements and expectations. That’s just one of many examples of situations companies encounter as they make their way through the business lifecycle stages.
Need support as you navigate your company through the business lifecycle? Find out how RoseRyan helps companies across the lifecycle and how we can guide your company to greatness.
Building the Right Strategic Partnerships for Your Company’s Growth
Some companies get their start because of one person’s incredible idea, but it will soon need more than a great mind to build and grow a sustainable business. Once emerging growth companies and fast-moving startups establish their footing, they have a lot to consider as they seek trusted advisors to help them achieve greatness.
Why Do You Need a Strategic Advisor?
No one person has all the answers. The savviest of entrepreneurs and the smartest of CEOs realize they need help with figuring out what they don’t know. Strategic growth consultants can fulfill that role because they’ve seen and done it all. They’ve been in the trenches at a wide range of companies, along all stages of the business lifecycle, and they’ll share best practices and guidance.
With a strategic growth partner, you gain access to experts to bounce ideas off of, and the right advice when you need it the most. At the same time, you have a place to turn as you work on developing an ecosystem of partners that you can rely on as the needs of your company become more complicated. This ecosystem becomes a valuable resource whether you’re debating a change to your business model, a strategic growth opportunity, or you’re entering a crisis. If the specialties of their consultants do not match your latest issue, your strategic advisors can quickly put you in touch with the appropriate resources, such as legal or tax advice.
The Qualities of Great Strategic Advisors
Trusted advisors are resources that you know will always be there for you and have your company’s best interests in mind. They can push the company toward its full potential when appropriate—when you are looking for new insights, when your company wants to move beyond complacency, you’ll have a guiding force in the form of your strategic advisors. Here are some of the qualities to look for as you seek such a partnership for growth:
The Right Strategic Advisors for Your Company
As you conduct research for the right advisor for your company, you can use this list as a starting point. Also learn how RoseRyan’s tailored advisory expertise helps evolving companies overcome their finance and accounting challenges and pursue their next milestone.
5 Ways to Improve Your Internal Audit Function
Is there room for improvement in your IT and business processes? Are your internal controls effective? Are you effectively meeting your compliance obligations? These are some of the top-of-mind questions for an internal audit function designed to mainly focus on the risk management, corporate governance, and internal control processes at the company, but there is so much more that can be gleaned from this valuable resource—if your internal audit function is set up a certain way. Here is how to improve and enhance the internal audit process and function at your company.
How Can I Improve the Internal Audit Function?
Ready for a More Proactive Internal Audit Team?
If your in-house resources do not have the skills to keep up with emerging risks, it’s probably time for a change. It’s true that internal audit needs to cover compliance and risk management—but the function can be set up to be broader, more effective, more proactive, and more strategic minded.
The internal audit and corporate governance experts at RoseRyan can help your company set the foundation for an internal audit function that will not only prepare your company for the audit of internal controls and audit the efficiency of your internal control system, but also take on much more—to make your company more aware of new emerging risks to the business strategy and how to address them. Find out more about the RoseRyan Internal Audit Solution, and let us know how we can help.
Why Your Emerging Growth Company Needs CFO Expertise
Does your fast-moving company have what’s needed to keep its current pace in a sustainable way? Or are you losing sleep at night worrying about all the aspects of the business you simply do not know enough about or have time to deal with? In between starting up and scaling up quickly (or flaming out), emerging growth companies realize they are missing a level of guidance and perspective that only an experienced CFO can provide. Here are some of the many reasons your company could benefit from CFO input, which could occur on a part-time, interim or occasional basis.
CFOs shift the focus of finance from looking at history to looking toward the future. The accounting record of how the company has performed so far may be in good shape, but what do the numbers tell you? As a member of the team, a seasoned CFO will ask the questions no one else is asking: What are the areas that can most impact our profitability—how can we optimize our profit and minimize our risk? What resources do we need to turn our plans into reality, and what is the best way to obtain those resources? How can we create more value without expenses getting out of control? Are we charging a fair and competitive value for our product or service or is Sales giving away the store (or asking for the moon)?
When the accounting/finance team is running a million miles a minute to keep the financial operations running smoothly, there is no time left to get at these important, big-picture questions that are critical for setting a successful path for the company. This is where CFO guidance can be invaluable: When they become a part of the team, CFOs introduce a future mindset. The CFO will bridge what the historical data tells us today with what is needed for the future through analysis and the buildout of likely scenarios to demonstrate their implications for strategic decisions that senior leadership is considering.
CFOs have a knack for uncovering cost efficiencies and missed opportunities. As an experienced CFO, I always review contracts when putting together a budget, and recently this habit led to the discovery of a significant underbilling situation. The client company was entitled to higher management fees. The fact is, it’s in a CFO’s nature to pay attention to the details that others have forgotten or lack the time or skills to properly review.
CFOs will help you realize the true value of your product, company or idea. When companies are starting out, there’s a tendency to do whatever’s necessary to secure those initial sales and allay that fear of not being able to get enough business to survive, let alone thrive. However, a company may fall into the trap of undervaluing what it’s selling—in order to score those initial sales wins or reach a top line goal.
But what’s the result of those actions? Not charging what your product or service is worth not only devalues your company but leads your team to think that cost is the way to compete instead of creating value. CFOs can help your team to stay on the right track by focusing on the value you bring to the market and helping you set the pricing and terms for your services appropriately. It may not help the company to make a sale if you have to tie up your working capital for six months before you get paid or engage with a client that will not pay you. A good CFO will help you gauge those additional factors before the contract is signed.
You may occasionally have strategic reasons for wanting to do business with a customer for less than your normal pricing. Your CFO should ensure that you articulate those reasons so that the company discounts appropriately and not excessively. A good CFO should also help the executive team recognize when it is time to walk away from an unprofitable business or an unprofitable product line, or define the criteria necessary to make that business worthwhile. Understanding the value of your product or service and charging for it properly will ensure your survival.
When It’s Time to Seek a Senior Level CFO
We work with a lot of entrepreneurs who have amazing ideas and promising businesses. A common issue as they make progress on scaling their companies is knowing when or how to offload some of their oversight responsibilities and worries. For example, a technologist-turned-CEO who has a brilliant product that could be life-saving needs to keep most of his focus on getting out in the field to sell his product and drum up interest with investors. But there are so many other responsibilities that need attention, including HR, legal, compliance and risk management. With wide-ranging skill sets and experience, an interim or fractional CFO can take on oversight of these areas and help the company run more smoothly.
What’s one of the biggest benefits of having access to a CFO, whether it’s for a certain number of hours a week or on an as-needed basis? It’s their ability to help you sleep at night. They can let you know, “these are the things we need to worry about and these are things we do not need to worry about.” They can narrow down the key risks facing the company while also helping you manage them.
Learn all about our tailored finance and accounting solutions for emerging growth companies, and reach out to RoseRyan to inquire how interim CFO expertise can help your company’s quest toward greatness.
Andrew Katcher, a consulting CFO for RoseRyan, blends financial, supply chain and systems skills with vast international experience, having held Fortune 500 division-level controller positions in Japan, Korea, Australia, Europe, Israel and Singapore, in addition to serving as an interim CFO for U.S.-based companies. Past consulting clients include Facebook (Oculus division), SanDisk, Logitech, Amazon/Lab126, SunPower, NYK Logistics and Core-Mark. He recently led a company through an acquisition while guiding two other companies through successful Series A financing rounds.
Where Your Business Is in Its Lifecycle and What to Do Next
Every business is on a journey. Some journeys end up being much shorter than anyone would like, while others can be long and rewarding in many respects. Taking stock of where your company is in its journey—also known as the business lifecycle—can help you fine-tune your strategic roadmap, take a detour if necessary, and keep zooming ahead to reach the company’s full potential.
What Are the Stages of the Business Lifecycle?
At RoseRyan, as we tailor our finance and accounting solutions to the unique needs of the companies we work with, we’ve identified four stages in the business lifecycle and the typical developments and needs companies undertake at each stage.
Launch: Companies that have managed to push past their initial introduction to the world are establishing their foundation. They need systems and processes in place that can put them on solid footing, and guidance as they make all sorts of decisions, from funding and managing resources to getting their financial operations established.
An outsourced accounting team can set up the company with a fully integrated tech stack, get the financial house in order, and put the company on the path toward producing credible, timely financial information for smart decision-making.
Usually not quite at the point of needing a full-time CFO, companies at this stage often do need CFO-level advice and support to advise them and act on their behalf when reaching out to investors and dealing with the board. A wrong strategic move at this stage can take a company wildly off-course and slow down its promising pace.
Scaling up: The challenges become complex as a company continues to hire and consider new strategies, and the accounting and finance demands grow. Companies at this stage are scaling up while also trying not to burn out. CFO expertise is vital at this stage to achieve this balance.
When a financial challenge comes up, a talent gap on the team opens up, or a strategic project needs additional skills for completion, companies at this stage need to know where to turn quickly. Outsourced finance pros can be a critical lifeline to keep everything steady within the core finance organization while everything is moving at a fast clip. They can address technical accounting issues, weave financial integrity into the company’s reporting structure, lead the company through its annual external audit, and more.
Go beyond: Here’s where transformative transactions are pursued and resources and skills are tested. Preparing as much as possible for the change ahead and knowing where to go when knowledge and experience are limited during this stage in your business lifecycle is a must.
There’s very little time to ramp up the team and streamline operations when the company is going after a big change, such as an IPO, a SPAC merger, or acquisition. Consider the due diligence that’s required with any one of these transactions, and the integration challenges of combining forces with another entity or transitioning to becoming a newly public company. Being ready requires inward assessments and changes to processes to be able to withstand increased scrutiny from investors, auditors and regulators, and to be SOX ready if going public.
Whenever possible for the before, during and after of these transactions, you can rely on experts who have led teams through similar experiences. They can bring best practices and practical advice straight to your team while also taking over some of the responsibilities that could overwhelm your already busy team.
Summit: Even if you reach the peak of your company’s latest strategic goal (i.e., you’re running a well-established public company), there is always more work to be done and other goals or adjustments to be made.
The increased complexity involved with a maturing company, new compliance requirements, and unforeseen circumstances can lead to the need to make significant adjustments, such as restructuring, divesting a business unit, or conducting a spin-off.
Making the right decisions along every step may require a team of outside experts to get it done right, while the company resets itself and finds its footing again.
Understanding the Business Lifecycle Stages and Your Next Steps
Whether you’re at the beginning of the startup lifecycle or your company lifecycle stage involves heading toward the exit, the challenges you’re facing can put a tremendous strain on the team. At various times, you’ll realize you need to bring in outside skill sets, perhaps on a temporary basis.
Having helped more than 1,000 clients over the course of nearly 30 years, we have seen and done it all, and can help. For example: While a company about to go IPO may have few if any staffers who have gone through a similar experience, we have consultants who can step in and help the team catch up on what’s needed to prepare and get through the offering—and be a smooth-running company on the other side, fully ready for the new reporting requirements and expectations. That’s just one of many examples of situations companies encounter as they make their way through the business lifecycle stages.
Need support as you navigate your company through the business lifecycle? Find out how RoseRyan helps companies across the lifecycle and how we can guide your company to greatness.
6 Must-Haves When Pursuing Growth Capital in This Rapidly Growing Market
An unprecedented amount of growth capital is available for the taking—but only if your company has a good idea and a solid business plan in place. Predicting a record-setting year, PitchBook recently reported VCs infused high-growth U.S. startups with $150 billion worth of capital in the first half of 2021. The bulk of it went toward late-stage VC investments ($108.8 billion so far this year vs. $109.8 billion for the entirety of 2020).
This isn’t just about Silicon Valley tech startups. Interest is high for emerging growth companies focused on the post-pandemic life and workforce (e.g., health care and internet companies), and all types of industries are getting attention, including agriculture, fintech, energy and car companies.
As we dig our way out of the pandemic, we are in a unique moment where there is a lot of capital available, and companies wanting to take the next step in their growth journey need to be ready. Here are the essential steps toward pursuing the next round of funding for your company.
Setting Up the Company for This Next Stage of Growth
Putting your idea out into the world, and asking for something in return, easily becomes an all-encompassing endeavor. You can lean on the expertise of financial consultants who can help you solidify your business plan, widen your network and prepare your pitch deck when the time is right. RoseRyan can be your strategic partner through every step of your next capital raising effort and beyond.
As an entrepreneur, you know the promise your company holds. We are here to help you see it through—by supporting you with the business side and getting you closer to your many goals. We can help with the things you don’t know that you don’t know. Learn more about how we support emerging growth companies, and tell our team about your latest challenge.
As CEO of RoseRyan, Dave Roberson leads the day to day business and builds upon the finance consulting firm’s established reputation for guiding companies to greatness. RoseRyan Founder and Chair Kathy Ryan named Dave to the CEO post in January 2020, about two years after he led a large RoseRyan engagement that provided transitional services for the Symantec-DigiCert divestiture. Dave previously served as a senior vice president for Hewlett-Packard Co. and president and CEO at Hitachi Data Systems.
The Challenges and Benefits of Developing a Sarbanes-Oxley Compliance Program
Without a doubt one of the most major milestones in a company’s growth journey is going public. That ringing of the opening bell (either literally or figuratively) for your IPO leads to another milestone the company will soon have to hit: becoming SOX compliant.
While the Sarbanes-Oxley Act of 2002 features many provisions designed to prevent financial fraud and enhance corporate governance, Section 404 in particular becomes a pressing concern soon after an initial public offering. This is when management will weigh in on the effectiveness of the company’s internal controls over financial reporting and, eventually, the company’s external auditors will offer an opinion as well.
Challenges in Establishing an Effective SOX Compliance Program
Here are a just a few of the challenges companies face when setting up an effective SOX compliance program:
A shift in some practices. Any change can be tough. The team may have been doing something a certain way for a long time and haven’t yet realized the practice could have a detrimental effect on the financial operations or the veracity of the financial information. New systems may need to be put in place that could take some time to learn. A cultural shift will need to occur if the “tone at the top” (namely the CEO and CFO) isn’t encouraging the best behavior throughout the company.
For the most part, professionals know what the ethical, right thing to do is—however, when systems are put in place to formalize that, it can require some adjustments. SOX experts who are practical in nature and flexible to the companies they work with know this already and come up with solutions that work for the company (its size, industry, complexity).
Disparate ways of working. Cultural differences among geographically dispersed offices can affect the company’s overall need to comply with SOX. Remote offices may follow customs and practices that don’t yet align with where the company needs to shift.
Ever-evolving risks. Here’s where SOX compliance is rarely if ever the same year to year. The top risks affecting the company are frequently changing as are emerging risks that the company may need to address. External experts are often invaluable in this regard as they work with multiple companies and see everything—they can seamlessly incorporate best practices they’ve picked up in the field and adjust them to your company.
Benefits of a SOX Compliance Program
In addition to meeting corporate governance compliance requirements, a SOX program offers multiple benefits, including the ones listed below.
Minimizes the risk of a material misstatement of the financial statement and fraud risk. With the right systems and processes in place, your company can prevent (or better detect) incidents of fraud and prevent errors from occurring that could affect the reliability of your financial reporting. All of the work that goes into SOX compliance contributes to this goal—SOX’s main purpose. It also contributes to protecting the company’s and top management’s reputation.
Introduces efficiencies. With a SOX program tailored for your company that integrates with your workflow, ongoing pain points will be eased and simplifying of controls will be achieved.
Gains trust in the marketplace. Whether your company has always instilled a sense of financial integrity or only now is shoring up its internal controls, potential stakeholders will know they can rely on the information you are sharing with them—and that can have a positive effect on your valuation.
Tips for Creating, Maintaining an Effective SOX Compliance Program
You may be wondering, how do I set up or improve a SOX compliance program? This post highlighted many of the challenges along with the benefits of taking on SOX compliance. SOX experts can help from the very beginning, even before your company is ready to go IPO and also be there when it’s time to bring in your external auditors to meet your SOX 404(b) requirements.
By working closely with SOX experts who have helped a wide range of companies, in various stages of SOX compliance, you can establish a workable, practical SOX compliance program that can be effectively maintained year over year. We’ve helped companies design, document and execute controls, often during a time crunch.
For an assessment of your program or the start of a SOX 404 compliance program, reach out to our corporate governance pros today.
5 SOX Compliance Tips for Early Stage Startups
Sarbanes-Oxley compliance has come an incredibly long way since the corporate governance law was passed nearly two decades ago. That doesn’t mean startups are in a hurry to become SOX compliant. Still, for a high-growth startup that may one day go public, its SOX-like compliance efforts can give assurance to management and investors that the company’s financial reporting can be relied upon.
What makes SOX compliance more clearly beneficial, compared to the early days of the anti-fraud law, is the significant financial operational efficiencies that open up when companies assess and tighten up their internal controls over financial reporting. With the help of financial integrity experts, they can realize such efficiencies as they start understanding and documenting their internal controls.
As your early stage startup contemplates the future, including potential exit strategies, what would you need to do to become SOX compliant?
SOX Compliance for Startups
Tip 1. Firm up your financial foundation. Your emerging growth company’s venture into the public markets might seem far away. Strategic opportunities can unexpectedly arise, however, in the form of a SPAC (special purpose acquisition company) merger, accelerating your company’s need to be IPO ready or SOX ready. Despite whatever strategic plan is in the works, the financial foundation of your startup should be sound so that you have the level of financial information and analysis needed to confidently move the company in the right direction.
Have investments in technology kept up with the size and complexity of the company and where it’s headed? Are your accounting processes practical and leading to timely, credible financial reports that are auditable? Do you have access to the kind of strategic financial expertise required to help you move the startup forward?
Tip 2. Keep current on your key risks. As your startup quickly moves ahead, your risk management efforts need to be adjusted. Risks change as the markets change, as new employees are brought in, as the economy shifts, and as customer demographics evolve. A large part of SOX compliance involves understanding the current major risks facing the company, so risk management for IPO-headed startups is also important.
Tip 3. Seek expertise early and often. Whether your company needs a version of “SOX lite” right now, an idea of whether it’s headed in a smart direction in its growth journey, or simply some expert advice, you need the right expertise to help you. Amid fast growth and your assessment of your high growth startup compliance, you’ll likely find that you need more insights than you can find in-house.
You’ll need to connect with experts who will adjust their guidance to where your startup is right now and then will be there with relevant solutions as those needs change. Seek out a finance and accounting consulting firm that understands emerging growth companies like yours as well as the version of the company you hope it will become.
Do the consulting firm’s experts have experience in your industry, with companies like yours? And if they don’t, how can they meet your needs? Look for a consulting firm that tailors its solutions to their clients rather than trying to bend a company toward its solutions.
Tip 4. Be prepared to act like a public company. Does your team have the skills and resources to meet the ongoing financial reporting demands and SOX requirements of a newly public company? The deadlines are not flexible once your company goes public, and the scrutiny is higher. Pre-IPO companies can ease into meeting the higher expectations by truly understanding what it takes to act like a public company, including SOX 404 compliance and all that entails.
Some of the main internal controls that a public company is expected to adopt are simply best practices that every company should be doing, such as segregation of duties. Undertaking good habits as early as possible can minimize the risk of a material misstatement of the financial statements.
Tip 5. Communicate with your external auditors. Here’s a tip that not everyone intuitively realizes is a possibility: You can proactively check in with your external auditors to understand their expectations.
SOX experts can help you keep these communication lines open, while retaining independence between your startup and the auditors. This way you can understand what auditors want to know and minimize any back and forth that would require your attention. After all, you have so many other responsibilities besides SOX compliance for startups.
How Does Sarbanes-Oxley Affect My Startup?
You may be wondering, “How do I implement SOX in my high-growth startup?” The short answer is startups do not have to be SOX compliant until they are public. Depending on your current growth plans, however, you could find that your startup should work toward becoming SOX ready. To set the wheels in motion, reach out to SOX and financial integrity experts who can help guide your company through what you can and should do now, based on your current growth plans.
How To Build A Successful Emerging Growth Company
Getting a small business or startup past the two-year mark is just one of many promising milestones. So many young companies fail early, so passing certain goalposts can be gratifying to the owners and entrepreneurs of an “emerging growth company,” a fast-moving business that may be venture backed or will soon seek significant funding. How can you ensure a bright future as you build your business? Here are a few strategies that have worked for others who have successfully built a business.
The Basics of an Emerging Growth Company
There are various definitions of an emerging growth company. The most prominent comes from the U.S. Securities and Exchange Commission, which considers an emerging growth company to have less than $1 billion in total annual gross revenue in its most recent fiscal year. This qualification allows a pre-IPO company to follow reduced disclosure and reporting requirements for its registration statement with the SEC.
Another way to characterize an emerging growth company is by its stage in the business lifecycle. An emerging growth company not only shows promise, it is in the process of developing or solidifying a strong foundation on which to further build the business.
Still running on minimal resources, it’s received some validation from investors and customers, and it may or may not go public one day. The business is moving at a fast clip and probably wants to get on more solid footing. It’s around this time that leaders of the company realize they could use some help with understanding their business and how it’s performing. There are strategic decisions to be made, to take the company in the right direction, but any moves need to be based on timely, reliable financial data and what that data means.
The company may not yet be ready for a full-time CFO at this point, however. An outsourced accounting team with a part-time controller could be the right fit for getting the finances in order and gaining a better understanding of the business. Are the current plans realistic? What do we need to adjust in order to reach our main goals?
When companies are first starting out, really early on, there may not be much of a plan—more of a hope to explore if a tech innovation can turn into a marketable product. Or the start of a potentially life-saving drug that will need full funding and interest to get it through the development phases. Such companies start out by just getting by with minimal resources for completing payroll, recording transactions, and paying the bills. As the company builds up, however, the need for a different level of financial expertise quickly becomes clear. Establishing finance and accounting processes, getting on the right systems for the company’s size and complexity, and having CFO-level expertise when needed as the company prepares to seek funding are all steps toward building a successful emerging growth business. These are steps for moving beyond the “building a startup” phase toward a brighter future.
The Essentials of Building a Successful an Emerging Growth Company
Is your emerging growth company prepared for the changes ahead? Do you wonder “How do I properly build my company?” or “What are the best ways to grow my business?” Start off by considering if you have some of the essentials:
Financial Reporting Requirements for Emerging Growth Companies
The expectations of an emerging growth company expands quickly once it pursues either debt or equity funding. It may need a higher level of financial help as it brings in more people and more talent to meet rising customer demand, ramp up sales and marketing efforts, or pursue an acquisition. While the company scales up, it also requires more structure and an understanding of whether and how it can keep up the pace with the resources it has and is planning to take soon. The company’s growth depends on making the right decisions.
Its financial reporting efforts need to be robust for the sake of decision-makers but also for its growing circle of stakeholders. Lenders will likely want to see audited financial statements, for instance, and the company would have to embark on a long and potentially complicated process to get that first audit complete. Many inquiries are likely to follow, so you’ll want a dedicated expert around who can support the company during the audit process, so everyone else can focus on their day jobs.
How Do You Build a Successful Business?
The million-dollar question any new entrepreneur wants to know: How do you build a successful business? Those who have done it know that it’s more than the product you sell or the idea you come up with. Your company could have the greatest, most unique idea for an app that every American will want to subscribe to over the next year. But, as your company considers adding this on to its portfolio, will it be able to keep up with demand? Does it have the capability of forecasting how long that demand will last? If your outlook is unrealistic, you could be setting up the company for a lot of disappointment—and disappointed users.
Make sure you have the information you need, exactly when you need it. When it’s time for your emerging growth company to further develop the finance function, bring in more finance and accounting expertise, and lean on growth consulting pros, you know where to reach us.
Identifying, Documenting and Assessing SOX Controls
No one can claim that SOX 404 compliance and developing a SOX controls compliance program is easy. We can say, however, that the overall process has become much easier after years of practice and an evolving understanding—by regulators, companies, auditors and, yes, consultants—over what’s needed to create a solid internal control framework that reduces the risk of a material misstatement of the financial statements.
In fact, the process has opened up incredible efficiencies within companies as they discover during the identification, assessment and documentation of their Sarbanes-Oxley internal controls that there are much better ways of getting done. This applies to the operations within the finance department and beyond that has any effect on how financial information is processed, analyzed and reported.
For companies that see an IPO in their near future or that have to suddenly become SOX compliant because they are going through a SPAC merger (merging with a special purpose acquisition company speeds up the SOX compliance timeline), this is a positive take on SOX controls. Here are some other basics to keep in mind as you undertake this process and look at your SOX internal controls.
Identifying SOX Controls
Under SOX 404, the internal control provision of the Sarbanes-Oxley Act, public companies need to provide a management assessment of the effectiveness of their internal controls over financial reporting (ICFR) and have their external auditor attest to that assessment.
How much time you have for identifying and assessing Sarbanes-Oxley internal controls depends on where the company is in terms of size and its public-company journey. Ideally, however, even private companies should tiptoe into the SOX waters if they want to gain an understanding of what it takes to build financial integrity into the foundation of their business and operate like a public company. Once your company goes public, it is subject to more frequent financial-reporting cycles, and a higher potential for material errors that could have a financial impact or harm your company’s reputation.
With financial operations that are on the up and up, with tight internal controls, the risk of a material misstatement and fraud are greatly minimized. Also the ability to meet SOX compliance requirements is enhanced and made to be more efficient if the process is tailored to the way your company operates and is set up so that it is sustainable to follow.
Assessing SOX Controls and Creating a SOX Controls List
Before getting to a list of your key SOX controls, a risk assessment can bring clarity to the current risks facing your company today that could have a detrimental effect on the company’s ability to produce reliable financial reporting. Relevance and materiality will keep the scope of SOX compliance on the internal controls over financial reporting (ICFR) that matter.
How to Identify SOX Controls?
What are the processes and systems your company has in place that should prevent employees from committing a mistake or fraud? If an error or incidence of fraud does occur, what are some ways it would be detected? These ICFR measures contribute to management’s ability to give assurance to the company’s stakeholders and securities regulators that the company’s financial information can be trusted.
What Are Some SOX Controls Examples?
Documenting SOX Controls
Documentation during the entire process will save valuable time later on when it comes time for management to affirm confidence in the company’s ICFR system and then for the auditors to weigh in on that assessment.
Remember to document the steps involved during the review process; the supporting documentation will aid the company’s ability to address any auditor questions and also help the company when the process starts over the following year. SOX experts can offer helpful insights on keeping this process as efficient as possible and also liaise with the auditors to minimize the back-and-forth that can arise during a SOX audit.
Being Efficient with SOX Compliance
RoseRyan has had a dedicated Sarbanes-Oxley Compliance solution since the 2002 law’s regulations went into effect. Companies have hired us to not only design a program that works with their workflow but to continue working alongside the company to maintain the program by updating and simplifying controls.
The ultimate goal of the SOX controls compliance effort is to strengthen your ICFR system so that a material misstatement of the financial statements can be prevented. The legal mandate makes this a must for public companies, but there is room to make it your own. With the help of SOX experts, you can establish an ICFR system that works for your company, that shows your company operates with integrity (which can help your valuation), and reinforces that your company is a good business partner.
Avoid These Common Lease Accounting Errors
Some companies received a major gift wrapped up in uncertainty when the Financial Accounting Standards Board delayed the effective date for the lease accounting standard last year. Now, private companies that have not yet implemented ASC 842 have until January 2022 to adopt the mammoth standard. Considering that time keeps slipping away, you won’t want to get caught making these lease accounting errors as you go through the implementation process.
Catching Up on Lease Accounting
Any sense of relief that the FASB gave from last year’s delay should have been short-lived. After all, the delay was made in response to the predicted economic impacts surrounding the early weeks of the COVID-19 pandemic, and corporate finance teams were consumed by new ways of working remotely and other priorities.
But now, as the effective date continues to get closer, it’s time to bring attention to the lease accounting standard if your company was not an early adopter (while private companies don’t have to reflect the changes until they file their financial reports for fiscal years beginning after December 15, 2021, early adoption is permitted).
Accounting for Leases: A Short Backstory
Back in 2005, the Securities and Exchange Commission called for a revamped leasing rule, and FASB and the International Accounting Standards Board released their accounting guidance around the same time, about five years ago. While U.S. GAAP makes a distinction between operating lease accounting and capital lease accounting, IFRS lease accounting treats all leases as financial (or capital) leases. The new GAAP rule brings right-of-use assets and associated obligations onto the balance sheet, rather than the footnotes. It also includes more than one operating lease accounting example.
Lease accounting error 1: Procrastinating on Lease Accounting Any Longer
One of the biggest takeaways we have found from helping companies adopt ASC 842? Earlier is better—taking on the new standard for many companies turned out to be more complicated than they initially anticipated. This can turn out to be quite a complex endeavor. Some companies have been surprised by embedded leases in service contracts that they did not initially realize fall under the guidance. The fact is, a contract can qualify as a lease if it includes a promise of the use of an asset for a specific period of time without substitution.
In addition to scrutinizing right of use assets and associated obligations, there’s also the need to calculate the initial direct costs for obtaining a lease and determining the incremental borrowing rate (which was not typically stated for an operating lease). Also, if it turns out your company will appear significantly more leveraged than past reporting periods, you’ll want to be able to explain why.
Lease accounting error 2: Underestimating the Resources Needed
Implementing the new lease accounting standard is a big project that can be surprisingly tricky for some companies. Fortunately, private companies have gained the benefit of time and the lessons learned from public companies that went through it.
Early on, there’s a quick realization that additional resources than first estimated are necessary to get through the lease accounting implementation. Accounting experts can help the company undertake the project in the most efficient way, as they fully understand the standard and can adapt their advice to the exact needs of the company and how they operate. The standard may be new to your company, but financial and accounting experts who are well-versed in what’s needed can save the company valuable time, by getting your team up to speed on the rule, in addition to leading the implementation effort if necessary.
Lease accounting error 3: Failing to Notice the Opportunity
Fortunately, there is opportunity during the implementation process for lease accounting. With the help of accounting experts who have taken earlier adopters through this process, you can discover ways to reconsider how your company makes and tracks vendor agreements. Efficiencies and consistencies could be introduced throughout the company, which could be a great development for the finance team going forward.
The finance team can lean on these expert mentors during this transitional time to help educate the non-finance-minded areas of the business what the new lease accounting standard means for them. With expert advice, you can also get answers to general questions—such as, How do I record a lease in accounting?—and the more complicated—Should we adopt new lease accounting software, and what are the best system options for our company?
Taking the Next Step on Lease Accounting
When you’re under a time crunch or your resources are overwhelmed, finance and accounting experts can respond and get everyone up to speed quickly. This will save your company so much ramp-up time and result in an easier overall process. Find out how our technical accounting experts can help your company today.