We hear a lot about the CFO’s mandate today to “understand the business.” But what does that really mean in practice?
Flywire CFO Mike Ellis gave a thoughtful view of how he executes against that during a recent virtual financial conference hosted by Ascent. Asked to share his learnings around helping to lead Flywire’s IPO in May of 2021, he offered that it’s important for the CFO to understand where the business model intersects with the accounting model, in order to ensure the most effective adoption of the relevant technical accounting literature. By taking such a view, you’ll be able to determine what financial metrics best represent the business model when explaining the business to both internal and external constituents.
“Always challenge yourself to understand the business well enough to say, what is the way an investor will best understand the business?,” he said. “Ensure that as you’re talking to investors, you can communicate the business model and how the accounting model interacts with it.”
That agility is one way to lay the tracks for a smoother road to whatever exit is planned. Overall, the importance of having the right foundation in place – people, processes and technology – underpinned much of the advice Ellis shared during his session on long-term planning for exit strategies during the recent Ascent Spotlight on Finance conference.
How can you best position your business for whatever exit strategy is planned? Ellis shared the following advice.
Earnings readiness requires robust financial and ancillary systems. Get the right financial system in place for timely, accurate financial reporting. Make sure you can close the books within -10 days. The biggest mistake early stage companies make while they are growing is underinvesting in systems.
It’s never too early to set up strong internal processes and controls. Make sure there’s diligence around the procurement process, good financial forecasting in place, and more, that will stand up to what investors expect, as well as give you the flexibility to adjust when needed.
Invest in teams by looking at what you’ll need in the next 6-12 months. You should be evaluating your team constantly. Look to invest in your existing team to get them the training and experience needed to deliver at the next level of the company’s growth stage. Look to fill gaps as soon as possible based on the mid to long term needs of the business. It’s important to understand where the gaps are, and see if there’s a desire and ability for existing team members to fill those gaps. A word of caution though, don’t underestimate people’s unwillingness to cede turf. There’s often uncertainty when responsibilities are narrowed, so be sure to frame this narrowing in terms of an opportunity to excel in a more specialized way, and focus on more strategic aspects of the business.
Experience is the best teacher. Ideally, you’ll have people on your team or organization who have gone through the IPO process. You should also lean on people in your network. Ellis recalls weekly calls he had with public company CFOs during Flywire’s IPO that were instrumental in helping him navigate the IPO process. Every business is unique and each approach to how you structure your team to meet the requirements of being a public company will also be unique. He stated that real-life experiences of other financial executives will be much more meaningful to your development than going through presentations without the context from the presenter.
Ellis said he doesn’t typically use the term “exit” when talking about financing or acquisition events. What we are really talking about is a change in stakeholders or investors, and hopefully the people behind it all will continue to drive shareholder value with a new set of investors.
“It’s not an exit, it’s really a new beginning,” he said.
Catch the full session on “Long-term Planning for Exit Strategies” here.