Keep the corporate rituals at bay

One of the most valuable assets of a growth company is its enthusiastic and motivated team that does its best for the company. They do this because they find their work meaningful and want to be part of building something great together with a good team. Corporate-style rigidity and bureaucracy are guaranteed buzzkills in these environments. That’s why entrepreneur-driven companies have flat organizations and flexible practices – they try in every way to steer clear of slipping into the corporate way of working.

If you’re not careful, though, that corporate mindset can still sneak into your company through financial administration. Financial processes look similar regardless of company size, which means that well-meaning advisers (consultants, investors, accounting firms) may inadvertently introduce corporate-style practices into your business.

Corporate-style rigidity and bureaucracy are guaranteed buzzkills in growth companies

One common detour appears in working-capital optimization projects. Working capital is critically important for growth companies, and there’s plenty of information available on the topic. In an earlier post, Optimize your financing needs, I listed several models that work well for growth companies. To ensure these optimization efforts don’t lead to corporate behaviour, remember that a big-company model doesn’t automatically work for a small, growing business.

A typical example is trying to secure the longest possible payment terms for purchase invoices. In some cases this might work, but your counterparties are also trying their best to optimize their working capital, and they rarely agree to long payment terms. In these situations, big players tend to override the smaller ones – and unfortunately, an early-stage growth company is usually the smallest.

If you then start pushing the remaining small but valuable subcontractor (e.g. a developer) around with long payment terms, you’re effectively postponing that entrepreneur’s payday and potentially putting their availability for future projects at risk. This risk is often significantly greater than the benefit gained from extending your payment terms.

On the receivables side, it’s important for a growth company to collect customer payments as quickly as possible. However, don’t stubbornly make your sales process harder by insisting on short payment terms – especially if your customers are even slightly larger companies.

Further, resist the urge to send debt-collection threats to your customers the instant an invoice hits its due date. Instead, a personalized message goes a long way and will get you the same result with minimal effort, without damaging the customer’s perception of your company. A negative perception held by customers and partners will always trickle back to your employees, easily eating away at their enthusiasm and motivation as well.

Also, make sure your employees find the financial processes that affect them – such as travel and expense reports – as light and unburdersome as possible. Ensure approval workflows don’t delay reimbursements; after all, these payments are essentially loans from your employees.

Your accounting firm and financial-management system play a major role here. An accounting firm that understands the entrepreneurial spirit can help build flexible processes and prevent unnecessary bureaucracy from creeping into your company.