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Growth Without The Guesswork: Building Financials That Scale · Bennett Thrasher Presents: Beyond The Ledger

• 0:08
  SPEAKER_00: Welcome back to Beyond the Ledger, where we go beyond the numbers to explore the strategies of risk and opportunities shaping today's business landscape.
• 0:16
  SPEAKER_00: I'm your host, Shard A Lakefield.
• 0:19
  SPEAKER_00: Growth is a goal for every business, but scaling too quickly without the right financial foundation can create cracks that are hard to see until they become real problems.
• 0:29
  SPEAKER_00: From reporting breakdowns and control gaps to increasing complexity across systems, teams, and markets, many companies find themselves reacting instead of repairing.
• 0:41
  SPEAKER_00: For today's conversation, we're joined by Molly Cochrane, senior manager in Bennett Thrasher's financial reporting and assurance practice, where she brings experience working with both middle market companies and large international organizations across industries like healthcare, manufacturing, and media, giving her a unique perspective on what's happening behind the scenes as companies grow.
• 1:03
  SPEAKER_00: Together we're unpacking what it really takes to scale without breaking your financials.
• 1:07
  SPEAKER_00: From recognizing early warning signs to building reporting frameworks and controls that can grow with your business.
• 1:14
  SPEAKER_00: Thank you, Molly, for being here today.
• 1:16
  SPEAKER_00: I'm excited to dive into this conversation.
• 1:19
  SPEAKER_00: Yes, thank you for having me.
• 1:21
  SPEAKER_00: Of course.
• 1:22
  SPEAKER_00: Are you ready to get started?
• 1:23
  SPEAKER_00: Yes.
• 1:24
  SPEAKER_00: Okay.
• 1:25
  SPEAKER_00: So as companies start to grow quickly, there's often a moment where things begin to feel stretched.
• 1:31
  SPEAKER_00: At what point do growing companies typically realize their financial processes are no longer sustainable?
• 1:37
  SPEAKER_00: And what are the early warning signs leaders tend to miss?
• 1:41
  SPEAKER_01: Yeah, I think I think what you said r is true, is that it happens over time.
• 1:48
  SPEAKER_01: It's and they kind of get to a point where they have this aha moment where all the processes and all the things that they had been doing previously maybe aren't working as well as they should and aren't working like they used to work.
• 2:02
  SPEAKER_01: And so I think we see a lot, especially with our clients in the middle market that are experiencing a lot of growth, is that at the early stages, um, smaller companies can get by with having a lot of manual processes.
• 2:17
  SPEAKER_01: So a lot of things are done on spreadsheets or done manually in Excel.
• 2:22
  SPEAKER_01: Um the accounting departments are small, so they have just a handful of people who handle everything.
• 2:28
  SPEAKER_01: Um and this works until the growth kind of outpaces what the framework was meant to be able to contain.
• 2:39
  SPEAKER_01: And so when transaction volume increases significantly, or maybe the company introduces a new type of revenue stream, and there has to be a whole list of additional considerations and policies around um that new revenue stream, or they hire a lot of people and headcount grows quickly.
• 3:02
  SPEAKER_01: Um or we see this a lot where um companies get acquired by private equity, or they have new investors come in, and these investors demand a lot more insight into the financial reporting process.
• 3:17
  SPEAKER_01: And so it's a very common issue that companies will face at some point.
• 3:23
  SPEAKER_01: And I think the early warning signs of that are um your old processes are not functioning efficiently.
• 3:31
  SPEAKER_01: So, for example, your monthly close process that is taking longer than the three to five days that it used to take before.
• 3:39
  SPEAKER_01: Um, or after you think you've closed the books, you are having to go back and reopen a month or a period and book entries back into a period because things were missed.
• 3:51
  SPEAKER_01: So I think all of those things are things to look out for as a company is experiencing significant growth.
• 3:58
  SPEAKER_00: Sounds like definitely growing pain.
• 4:00
  SPEAKER_00: So does you have to adapt adapt quickly?
• 4:03
  SPEAKER_00: So a lot of companies rely on scrappy, informal processes earlier on, kind of like we insinuate, and they work until they don't.
• 4:12
  SPEAKER_00: So when those processes start breaking down, what's usually the first thing that needs to be addressed?
• 4:17
  SPEAKER_00: Is it people, processes, or do you think it's technology?
• 4:21
  SPEAKER_01: I think all three are important.
• 4:24
  SPEAKER_01: Um, but if I had to rank them in order, I would say processes first.
• 4:29
  SPEAKER_01: Okay.
• 4:29
  SPEAKER_01: And then people and then technology.
• 4:32
  SPEAKER_01: If you think about it, you have to know what processes are needed in order to determine who you need to do them and what tools can assist in getting things done more efficiently.
• 4:44
  SPEAKER_01: And so by processes, I mean the company should maybe consider creating a standardized monthly closed checklist or a checklist for various um key accounting areas.
• 4:58
  SPEAKER_01: Make sure key accounting policies and processes are documented, that they're defined, and then once we document and define that, then we're delegating that out to the appropriate people.
• 5:11
  SPEAKER_01: Um and I think also as you're looking at the process, um, make sure that there are appropriate levels of approvals on key processes.
• 5:21
  SPEAKER_01: So um reviews, approvals, reconciliations, that type of thing.
• 5:26
  SPEAKER_01: I think if you jump ahead of that and you hire a lot of people, you wind up just having a lot of people that don't really know what to do or what the expectations are.
• 5:36
  SPEAKER_01: And likewise, if you go and spend a lot of money on technology or AI without first honing in on what your processes are, um, you can wind up spending a lot of money or wasting a lot of money on tools that you don't really need.
• 5:51
  SPEAKER_01: So I would say focus on the processes, hire the right people and know exactly what you're hiring them to do, and then understand technology and use it to make those processes more efficient.
• 6:03
  SPEAKER_00: Great.
• 6:04
  SPEAKER_00: And especially if you hire a lot of people and don't know the what processes you need to fix it, it's kind of doing more harm and and than good, honestly.
• 6:13
  SPEAKER_00: Exactly.
• 6:14
  SPEAKER_00: So there's a lot of talk about scalable reporting, but that can mean different things depending on the stage of the business.
• 6:22
  SPEAKER_00: So, what is truly scalable financial reporting framework look like for a company transitioning into its next phase of growth?
• 6:30
  SPEAKER_01: I think one of the most important things that management should focus on is you want your financial reporting to be consistent, you want it to be accurate, and you want it to be timely.
• 6:41
  SPEAKER_01: So design your framework to be repeatable, meaning the books can be closed in a similar way each month, and this happens relatively quickly.
• 6:51
  SPEAKER_01: People are familiar with that process, they know what to do, they know the deadlines, and they know the expectations.
• 6:57
  SPEAKER_01: And I had mentioned before, there a lot of our clients will use a checklist, so that details everybody's responsibilities.
• 7:05
  SPEAKER_01: It's often tied to a calendar to keep everybody on the same page, everybody working at the same pace towards the same goal.
• 7:13
  SPEAKER_01: Um, a lot of easy tasks can just be completed quickly.
• 7:17
  SPEAKER_01: Um, and a lot of, like, for example, uh balance sheet reconciliations, they can be completed in the system.
• 7:25
  SPEAKER_01: So that's one example of kind of using technology to your benefit.
• 7:29
  SPEAKER_01: Um and you can test to see if your framework is working properly by, and I mentioned this before, but is it are you able to close the books generally in the same number of days following the end of the period, so month or year end?
• 7:45
  SPEAKER_01: And once you close the books, how often are you having to go reopen a certain period to book an invoice that was missed that needs to be recorded as a payable or an accrual, a bonus accrual that wasn't recorded?
• 7:59
  SPEAKER_01: Um, and so I think this is a very difficult thing for companies, and it's hard to transition into a new phase of growth when you know you've been operating at this size in this bubble for a long time and it's been working.
• 8:16
  SPEAKER_01: Um, and I think it's hard also to make the growth successful if the financial reporting isn't scalable and hasn't been able to keep up because it's hard to make decisions, it's hard to see how successful things are if your financial data is incorrect, if it's if it's not consistent, it's all coming from different places at different times, and if it's not timely, if you're getting information months, weeks after a um a certain event, it's hard to make decisions for the future if um if if you don't have timely reporting.
• 8:54
  SPEAKER_00: So internal controls can sometimes feel like a slowdown, but they're critical as complexity increases.
• 9:01
  SPEAKER_00: So, how should companies approach building internal controls without disrupting their pace of growth?
• 9:08
  SPEAKER_01: I would say focus on a risk-based approach.
• 9:11
  SPEAKER_01: So the goal isn't necessarily more controls.
• 9:15
  SPEAKER_01: More work doesn't always equal better outcome.
• 9:19
  SPEAKER_01: Very true.
• 9:20
  SPEAKER_01: Um I think it's understanding the processes like we were talking about before, and then embedding meaningful controls into a process that is already working and already happening.
• 9:32
  SPEAKER_01: And I think using thresholds in materiality is perfectly fine.
• 9:37
  SPEAKER_01: Um, so for example, um small, let's let's say a company has a control where expenses need to be approved.
• 9:47
  SPEAKER_01: Well, maybe there's a threshold where expenses under, say, 3,000 don't need the approval of the CFO.
• 9:54
  SPEAKER_01: But if there's a large or unusual expense, um, let's say they have a$50,000 payment for something, that gets flagged as under the control as something that needs the approval of somebody higher up, so a controller or a CFO.
• 10:10
  SPEAKER_01: And many of these things you can actually automate in the system.
• 10:13
  SPEAKER_01: And we see that a lot with our audit clients.
• 10:17
  SPEAKER_01: Um, we'll have our risk advisory team come in and work alongside our team as we're doing the audit, and they will do a thorough dive into the client's system to see how they're using IT controls, and they offer them um suggestions on how to maximize the IT control environment because a lot of these things can be set up directly in the system so that you know the control is functioning correctly.
• 10:45
  SPEAKER_01: Um and just another thing to note too is that we we think of controls kind of in two buckets.
• 10:51
  SPEAKER_01: So you have your preventative controls and you have your detective controls.
• 10:56
  SPEAKER_01: Um so to get a little bit technical, preventative controls do what they sound like they do.
• 11:02
  SPEAKER_01: So they prevent controls on the front, they prevent errors on the front end, and your detective controls detect errors on the back end.
• 11:09
  SPEAKER_01: And so I think when you're building a control environment, it's probably a lot easier to start with the detective controls.
• 11:14
  SPEAKER_01: So finding errors, detecting those errors on the back end.
• 11:18
  SPEAKER_01: Not everything has to be prevented on the front end if there are strong controls in place to find those errors on the back end.
• 11:28
  SPEAKER_01: And over time, I think a company can implement stronger preventative controls into their control environment.
• 11:36
  SPEAKER_01: Um, but that doesn't necessarily have to be the first thing that they're focusing on.
• 11:42
  SPEAKER_01: Um and then the last thing I would say is to clearly define who the control owner is.
• 11:47
  SPEAKER_01: So you want to document who prepares um certain tasks, who's reviewing those things, and then who's ultimately approving um approving those control items.
• 12:00
  SPEAKER_01: And I think this keeps everybody accountable.
• 12:03
  SPEAKER_00: Absolutely, it does.
• 12:04
  SPEAKER_01: Processes.
• 12:06
  SPEAKER_00: Yes.
• 12:07
  SPEAKER_00: So there's there's always that tension between maintaining agility and adding structure.
• 12:13
  SPEAKER_00: So how do you strike the difference between speed and financial accuracy as a company scales?
• 12:20
  SPEAKER_01: Yeah, this is hard.
• 12:22
  SPEAKER_01: Um as a as a company scales, I think it can be very overwhelming to keep up and to accommodate all of the change.
• 12:31
  SPEAKER_01: Um, and I mentioned materiality before.
• 12:33
  SPEAKER_01: I think this is key and it can be used to your benefit.
• 12:37
  SPEAKER_01: So, you know, minor variances, minor things, they they may not be worth your time to investigate all of that, but but have a threshold set above which things should be investigated and should be corrected if needed.
• 12:50
  SPEAKER_01: And um the last thing I would say is to think back to risk again.
• 12:56
  SPEAKER_01: Um maybe certain accounting areas are less risky, and but there are things like revenue recognition or cash that are more important for obvious reasons.
• 13:07
  SPEAKER_01: So I would say prioritize those areas first, and then you know, you can focus on the the less risky, less material items second.
• 13:19
  SPEAKER_00: Okay.
• 13:20
  SPEAKER_00: Address the highest risk levels first.
• 13:22
  unknown: Yes.
• 13:23
  SPEAKER_00: From an audit and insurance perspective, you get a front row seat to see what works and what's not.
• 13:29
  SPEAKER_00: So, what are some of the most common control gaps you see in growing organizations?
• 13:34
  SPEAKER_01: I think the most common one that we see is segregation of duties.
• 13:39
  SPEAKER_02: Okay.
• 13:40
  SPEAKER_01: Um, so for example, the same the same person is doing everything along each stage of the process.
• 13:47
  SPEAKER_01: So the the same person is can create a vendor in the system.
• 13:53
  SPEAKER_01: That same person also has the ability to write checks or issue wires out of out of the bank account, and that same person is also responsible for approving or releasing those payments.
• 14:05
  SPEAKER_01: And so you can kind of see where that could create an issue uh if you're working with somebody maybe who is thinking about committing fraud or isn't the most ethical person.
• 14:17
  SPEAKER_01: Um, this happens a lot when a company is growing because the accounting team is small, so there aren't enough people for one separate person to do each step of that process.
• 14:28
  SPEAKER_01: Um so I think once you understand these gaps and how the process can be approved and who you need in order to have better segregation of duties, then you can go out and you can hire the right people and you can assign them tasks to create a better um segregation of duties within your control environment.
• 14:53
  SPEAKER_00: Have them defined.
• 14:55
  SPEAKER_00: Growth doesn't always happen organically, as we know.
• 14:59
  SPEAKER_00: MA and expansion introduce um another layer of complexities.
• 15:04
  SPEAKER_00: So, how does growth through acquisitions or entering new markets impact financial reporting and risk?
• 15:10
  SPEAKER_00: Because I know that that could be a whole nother layer of things.
• 15:16
  SPEAKER_01: Absolutely.
• 15:16
  SPEAKER_01: And we we see this a lot.
• 15:18
  SPEAKER_01: Um, I would say probably every year I have multiple clients that have gone through acquisitions or business combinations.
• 15:26
  SPEAKER_01: Um, and I think what we see is a lot of times before these types of acquisitions, a company will have one trial balance.
• 15:34
  SPEAKER_01: They have one set of books, they have one system, and they have streamlined processes that work for them, but maybe aren't um broad enough to then incorporate a whole nother entity or a whole nother company under that umbrella of what's been working for them historically.
• 15:52
  SPEAKER_01: And so after an acquisition, um, you'll often have two trial balances.
• 15:58
  SPEAKER_01: So you have your company's trial balance, and then you'll have the trial balance of the company that you acquired.
• 16:04
  SPEAKER_01: And the company that you acquired may have a completely different system, and they're trying to integrate.
• 16:11
  SPEAKER_01: So the systems may not talk to each other very well.
• 16:15
  SPEAKER_01: So there's a lot of disconnect and things being done manually to consolidate, to if there are eliminations that need to happen, these are being done topside manual entries.
• 16:28
  SPEAKER_01: Um I think a lot of times you see that even the processes at one entity are not the same as the processes at the entity that is the acquiring entity.
• 16:40
  SPEAKER_01: Um and so this can create obviously a lot more work and put a lot more stress onto a framework that had been working well in the past.
• 16:50
  SPEAKER_01: Um and growth is really important to businesses.
• 16:52
  SPEAKER_01: Businesses want to grow, they need to grow.
• 16:54
  SPEAKER_01: And so I think sometimes there's this mindset that growth can happen now.
• 17:00
  SPEAKER_01: Like we need to grow, we need to do this, and then finance and accounting, like we'll just catch that up later.
• 17:06
  SPEAKER_01: You know, they'll they'll figure it out.
• 17:08
  SPEAKER_01: Um, but I think it's really important to have a plan in place as to how you're gonna integrate acquired companies and how the two entities and all of the processes are going to blend together and um be something that is effective and efficient for the accounting team to manage.
• 17:29
  SPEAKER_00: Definitely before it happens, because it sounds like that would be a nightmare to mitigate if nothing is in place until it already goes through and then everybody's like, what do we do next?
• 17:42
  SPEAKER_00: Especially if there's two different processes coming together.
• 17:44
  SPEAKER_00: So exactly.
• 17:49
  SPEAKER_00: So strong financial infrastructure doesn't happen in a vacuum.
• 17:53
  SPEAKER_00: It's driven from the top.
• 17:54
  SPEAKER_00: So what role do leadership teams, CFOs, controllers, founders, etc., play in setting the tone for financial discipline during growth?
• 18:05
  SPEAKER_01: I think it's very important.
• 18:07
  SPEAKER_01: Um I think the mindset and the attitude of leadership is crucial to the growth being successful and not feeling completely out of control.
• 18:19
  SPEAKER_01: And we say this a lot, but communication is key.
• 18:22
  SPEAKER_01: So I think aligning priorities among all of the company's groups so that each department feels like their needs are being met and they understand their role in and everything in the growth.
• 18:35
  SPEAKER_01: I think it can be hard when there's a disconnect between top management and the CEO and the head of finance and accounting, because a lot of the work falls on finance and accounting to figure out how to integrate the processes, the financial reporting, and it's it's it's difficult.
• 18:54
  SPEAKER_01: Um, and so you want that person, the VP of accounting or the head of finance and accounting, you want them to feel like they have a seat at the table so that they understand what the change, what the growth is going to mean for their department and the responsibilities of everybody that they manage, and then they're able to communicate that to the people that work for them.
• 19:18
  SPEAKER_01: And so the department feels like they're part of the decision making and that things are expectations are clearly laid out before the growth happens and before it's it seems out of control.
• 19:30
  SPEAKER_00: And then everybody can feel invested in one common goal, too.
• 19:34
  SPEAKER_00: So everybody when everybody's on board, there's so much more opportunity that comes from it.
• 19:39
  SPEAKER_00: Right.
• 19:39
  SPEAKER_00: So for companies listening that are in a high growth phase right now, this is very real for them.
• 19:45
  SPEAKER_00: So if you have to give one piece of advice to a company scaling quickly, what's the most important step they should take to protect the integrity of their financials?
• 19:56
  SPEAKER_01: I think establishing a clear financial reporting framework now is key.
• 20:02
  SPEAKER_01: And that framework has to be solid, but allow for room to adapt and grow.
• 20:09
  SPEAKER_01: And so, for example, make sure what you're reporting, make sure it's efficient, make sure it's accurate and ties back to the same sub-ledgers or underlying data and support.
• 20:21
  SPEAKER_01: This this will improve your accuracy and timeliness of financial information.
• 20:27
  SPEAKER_01: Um, focus on establishing clear audit trails.
• 20:32
  SPEAKER_01: So where data is coming from.
• 20:34
  SPEAKER_01: Things are kept in an organized manner, and assign ownerships of tasks to people so that they know what their responsibilities are now and then also in the future as the company grows.
• 20:46
  SPEAKER_01: And then I think my last piece of advice after we talked about all of the practical and technical things is just have a positive attitude.
• 20:55
  SPEAKER_01: Please.
• 21:20
  SPEAKER_01: And I think keeping the culture fun and exciting goes a long way.
• 21:25
  SPEAKER_00: I mean, it it definitely makes everyone better when there's a positive attitude in place.
• 21:31
  SPEAKER_00: That is huge advice.
• 21:33
  SPEAKER_00: Everybody, no matter what industry, what company, everybody should always have a positive outlook on things.
• 21:40
  SPEAKER_00: There should be things to look forward to.
• 21:42
  SPEAKER_00: So thank you, Molly, for this wonderful conversation.
• 21:45
  SPEAKER_00: I know a lot of our audience members that are ex either experiencing crazy growth or they're anticipating it.
• 21:54
  SPEAKER_00: A lot of this information is gonna be extremely valuable and they can take away and help them in the long run.
• 22:00
  SPEAKER_00: And hopefully they can make with you as well.
• 22:02
  SPEAKER_00: So I really appreciate the conversation and thank you so much.
• 22:06
  SPEAKER_00: Thank you.
• 22:07
  SPEAKER_00: That wraps up today's conversation with Molly Cochran.
• 22:10
  SPEAKER_00: As your business grows, having the right financial reporting structure and controls in place isn't just helpful, it's critical to scaling with confidence and avoiding costly setbacks.
• 22:21
  SPEAKER_00: Thanks for tuning in to Beyond the Ledger.
• 22:24
  SPEAKER_00: For more insights and expert perspectives, visit btcpa.net and explore our latest resources.
• 22:31
  SPEAKER_00: And don't forget to like, follow, and subscribe.
• 22:34
  SPEAKER_00: Until next time, I'm Sharday Lakeland, and we'll see you for the next conversation.