What are the organizational implications as a company grows?

SUMMARY

There are three key changes to the organizational structure as a business grows:

1. Leadership layering: With the growth in headcount, more managers are required. This is often called layering.
2. Functional specialization & splitting: Single function focus: With the growth in size, what had been a few leaders who played multiple simultaneous roles, gradually becomes more leaders with “single function focus.” This creates a spinning out of those roles no longer able to be performed by a single leader as they select and specialize in the one function that is their zone of excellence or genius.
3. New Function creation: With the expansion of the business, new functions are born that hadn’t been needed in earlier stages of company growth.

Evolutionary changes within core functions in the company org chart. An organization can be parsed into 3 “meta-functions”-- MAKERS: those who make the product (manufacturing, operations, software development, engineering, services delivery, etc.); SELLERS: those who sell it; and “MEASURERS: those who set and measure progress and organizational health (e.g. finance, human resources, COO, President, CEO)

Finance & the CFO [Chief Financial Officer]

• The CFO function sits squarely in the measurer bucket. As a company grows, so too does the finance function along with it. Headcount, layering, and specialization evolve, often from an outsourced or part-time bookkeeper/service + a CPA responsible for tax filings, to an insourced team with CFO + the following 6 subfunctions in middle market businesses. Layering will also occur as the company grows, as each one of these sub-departments inside of the finance function will usually need more headcount to complete the additional work generated by company growth in size, products & complexity.
  • Controller: often this is the first function brought inhouse and is focused on historical finance & reconciliation. It’s a “rear view mirror-looking” monthly/quarterly/yearly closes, audit management & tax
  • Accounting manager: most often this role is responsible for cash inflows & outflows, focused on accounts receivable (monies due the organization from customers) and accounts payable (monies due to others that need to be paid out. Often some of the biggest line-items include payroll for staff & employees, raw materials, and what’s often referred to as SG&A (sales, general & administrative).
  • Financial systems management: this role is born when the organization gets to big to manage inflows and outflows on an Excel spreadsheet, or using a popular small business financial software like Quickbooks. It’s when more real-time management becomes important, and the need to balance inflows & outflows to ensure the financial health of the company.   The popular acronym for financial systems software is ERP, or “enterprise resource planning.”
  • Financial Planning & Analysis: With financial systems and ERP, comes the need of a growing organization to be able to build budgets, measure them to actual, and do short, medium and long-term forecasting. This function is usually future-looking, or “through-the-windshield”-focused, looking at what’s coming down the financial road on the company’s growth journey.
  • Debt/leverage/borrowing: As companies grow, they often take on more leverage. Borrowing can be asset-based, or secured by intellectual property, or simply on the whole business itself. The finance function needs to be able to secure the best lending terms for the debt, and then make sure that the company remains within what are called the lending covenants, or financial terms under which the debt was issued. If the company strays outside of these financial health metrics, the lending institution has at the option the prerogative of calling the loan in.   Usually this is responsibility falls directly within the CFO’s individual responsibilities due to its importance to the viability of the company.
  • Treasury: This is a function that often evolves as a company. This cash management function often includes hedging responsibilities if a company has volatile assets including fluctuating prices in foreign currencies and raw materials. In addition, if a company does business internationally, this role often is responsible for foreign exchange (at times referred to as forex)
  • Other: There are many other sub-functions inside the finance organization, driven most often by size of business (roles like internal audit), geographic distribution of the business (often international tax), ownership structure (investor relations if a company is publicly traded), and specific industries that demand other finance function specialties (e.g. limited partner reporting in case of the asset management industry like private equity)

For larger organizations or organizations with specialized needs, additional finance-related functions may be required to resource an effective finance function (e.g. internal audit, transfer pricing department, corporate vs. divisional finance organizations, and more).