How Good Accounting & Financial Strategy Opened the Door to Supercharged Growth for One Consumer Goods Company
This is the story of Simple Startup helping one client to build an accounting foundation, to revolutionize their business model and to find relief from their high growth company blues.
Those High Growth Company Blues
Imagine you’re a high growth, consumer goods company that’s preparing to change the world, but you’re weighed down by your capital needs and struggling with a high cost coastal accounting firm that is less of the strategic financial partner you desperately need and more of an expensive bookkeeper.
This is the story of Simple Startup helping one client to build an accounting foundation, to revolutionize their business model and to find relief from their high growth company blues.
Built on Vision & Passion
About The Client
This consumer goods startup was built on the passions of the Co-Founders, namely health, well-being and sustainability. They not only believed that access to healthy products should be for everyone (not just those who could afford to shop at Whole Foods) but also the manufacturing and consumption of these healthy products should not add to the waste already destroying the earth. They were determined to make a big impact on the world, but needed to get a handle on their finances (numbers) first.
Can They Restore Trust in Their Numbers?
The Problems
This consumer goods company came to Simple Startup to initially restore faith in their accounting and hence financials and once this was done, Simple Startup was able to identify three core issues that would need to be addressed in their business to help them effectively achieve their serious growth goals.
1. Accounts Receivable Risk and Cash Collection Concerns
Whilst sales were painting a good picture, a host of accounts receivable was aging beyond 90 days that hindered the client’s ability to collect on much needed cash.
2. Business Model Inefficiencies Resulting in a High Burn Rate
Raising capital was not a challenge but the use of that capital required optimization. The company had an incredibly lengthy cash conversion cycle that included buying finished goods inventory manufactured overseas, having that inventory sit in a warehouse until they were leased, shipping to a customer and then waiting for the lease payments to accumulate to such an extent they could pay back the total cost of the product resulting in a cash conversion cycle in years rather than months.
3. The Absence of System Infrastructure To Support Their Growth
There were no appropriate systems, and hence no appropriate controls, in place to properly identify, locate and manage the client’s fixed assets. Fixed assets that were the literal key to delivering their world changing product.
The Sweet Winds of Change
The Solutions
Simple Startup rolled up its sleeves, joined the client in the trenches, and got to work starting with the aging accounts receivables (AR).
The Solution To Problem 1:
AR as a Percentage of Revenue
Simple Startup was able to design a metric that showed the AR risk as a percentage of revenue thereby providing a metric that could stand the test of time and business growth. This metric helped track progress and we ultimately reduced aging AR to a quarter of what it was within 4.5 months through well designed and well executed cash collection policies and procedures.
The Solution To Problem 2:
Front & Back End Financing Solutions
The second issue was the excessive cash conversion cycle which involved conducting business model stress testing alongside the client to identify opportunities for change. Specifically, these changes included introducing front and back end financing (lease contract and vendor financing) that turned that long cash conversion cycle on its head taking it from 2-3 years down to 2-3 months!
This had an enormous impact on the amount of working capital (cash flow for operations) required in the business, which meant that every dollar the client then raised through equity or debt was able to be put to better work (i.e. be spent on growing the business instead of simply maintaining its operations).
The Solution To Problem 3:
Asset Management Platform
The third and final issue was the absence of system infrastructure to support the client’s growth and Simple Startup solved this through extensive research and identification of an appropriate asset management platform so the client and its technicians could centrally and accurately manage all field assets.
This not only helped solve operational headaches but also significantly improved the accuracy of its financial statements, most specifically its balance sheet – something the client and its auditors were/are very pleased about.
You've Got A Friend In Me
Progress and Results
With their previous coastal accounting firm, this consumer goods company felt like a small cog in a big wheel, but with Simple Startup they felt supported and understood.
Simple Startup developed a solid business model and accounting foundation upon which the client could grow. This restored faith in their numbers and from there the client was able to further optimize their business model and implement revolutionizing change.
With these improvements in place, the client was also able to a) concentrate on building its business and not on worrying about the business’s fundamentals, b) channel investor capital into building market share, and c) position themselves for a strategic corporate acquisition thereby allowing them to deliver a great financial return to their shareholders.
Finally, and as a result of Simple Startup’s support and guidance, the client was able to grow their revenue tenfold from $40K to $500K per month.
In addition, as their outsourced finance and accounting partner, Simple Startup was able to easily and cost effectively scale with the client as they grew into a nationally recognized brand.
If you’re feeling a little less than confident in your current team, that’s okay, there is still time to get back on track!
You can easily schedule time on our calendar here and we’ll take care of the rest, including determining the most suitable service for your business and your goals.
