Why spend visibility is crucial for scaleups

All sources point towards the UK falling into recession in the last half of 2022. And with businesses still adjusting to life after COVID-19, these impending changes spell big challenges for businesses once again.

COVID-19 saw companies re-evaluating their business models because consumer behaviour was forcibly changed. And now it looks like the same is in store. Businesses must start to consider changing consumer and customer behaviours in order to stay relevant to its customer base and their pain points.

It’s not all doom and gloom though. If you’re looking to attract Venture Capitalist (VC) investment into your growing scaleup, the figures from early 2022 look promising. More than £15 billion of VC funding has been invested into UK businesses in the first six months of 2022, which is a 7% increase from the same period a year before.

But to attract this kind of investment, your scaleup needs to show that it has the potential to generate profitability. This blog explores the importance of re-evaluating your business models and why taking control of cash flow is a great way to help demonstrate business viability and potential growth.

Using spend visibility to re-evaluate your business model

Without re-evaluating your business model and getting clear spend visibility, you simply won’t know where you stand in the market or what the future looks like for your business. Although a particular business model might have continued working for you in the past, that doesn’t mean it’s the best way to scale your business rapidly, especially in an increasingly turbulent climate.

Although VC funding remains relatively steady, the global economic downturn has investment firms treading more carefully into investment opportunities. That’s why you need to ensure your business model is good for future profitability and drives efficiency in your business. You need to see how you can get customers on board for less. You should look at customer acquisition costs, costs per lead, and more cost-effective self serve options for customers, if appropriate.

VC firms want to see actuals and forecasts, whether that’s a three or five-year plan, or similar. And then, what are your expected cash flows as a result of these assumptions? All this is used to calculate gross, net burn, and runway, which is key to VC funding.

Re-evaluating your business models means your business can become more focused and better attract much-needed funding to help support business growth.

Pinpoint areas for improvement with spend analysis

To make important business decisions, you need access to the right data. And that means you need real-time reconciliation and complete spend visibility.

Changing the direction of your business and adapting to a new business model isn’t a small change — it could mean the difference between stagnant business growth and rapid business growth. Visibility over spend can help you achieve the latter.

You need to validate your unit economics to understand whether your product or service is viable. For Payhawk customers, who manage all business spend and employee expenses through our solution, getting spend visibility is simple. CFO’s can see spend in real time to help them make better short-term and long-term decisions.

Payhawk also integrates with all of the leading ERP software on the market; meaning our customers can get a cohesive view to determine whether their unit economics are valid. Payhawk’s custom fields can give customers specific data on business spend, spend types and greater analytics.

"As a CFO, I want to know how much money and profit we have in real-time and what levers I need to pull. We also need to know about our stock, including when it's arriving, how much is in transit, and if we need more. I can see all of this via my ERP, plus I can see spending in real-time thanks to the direct integration with my expense management software," Giancarlo Bruni, CFO at Heroes, explains.

Your finance team needs to focus on driving strategy

Of course, there’s an overwhelming need for finance to drive business strategy in any business. And this is true for a scaleup environment where the CFO must engage with the VC firm to get the best out of the relationship — that means they need to be commercially driven, and so does their team.

But for the finance team to embrace this shift, they need to be able to let go of menial and time-consuming tasks such as chasing down receipts. They need technology to streamline these tasks, making the team as a whole more efficient and free to focus on the strategic side of the business.

When startups and scaleups take on VC investment, the role of the CFO changes. Suddenly, there are more investor relations and an increased focus on board reporting. They need to assess customer acquisition costs and analyse the long-term value of customers. Finance plays a role in making the organisation as efficient as possible, and you need to put the right tools in place to enable them to do that.

Cash flow control shows business viability and growth potential

TechCrunch describes “runway as how much cash a company has at its disposal to operate before it runs out of money.” And, 40% of UK businesses say their cash reserves won’t last longer than six months. Cash flow and runway is the lifeblood of any business, but without visibility into company spending, it’s impossible to know how you’re performing.

Cash flow visibility is paramount if you’re hoping to scale your business, particularly when looking for VC investment to accelerate the growth curve.

VCs are looking for high-growth potential businesses to invest in and they need to ensure they’re investing wisely. Which means you need to show you have full visibility (and control) over your cash flow. You need to demonstrate that you know how to manage your money competently and that your business has future potential profitability, not just revenue growth.

But managing cash flow is not always straightforward. You might be held back by legacy systems, or your finance teams might be wasting time on manually-draining tasks.

So how can you take control of cash flow and understand whether you’re spending in the right places?

Planning for the future — solutions for the long-run

Scaling your business brings a period of high growth but also a lot of change. Change can be daunting — that’s why you need to find a partner with scalability potential, like Payhawk. Partnering with Payhawk means we grow with you.

You might not need all the governance and controls as you start to scale, but you will, and quicker than you think. Thankfully our expense management solution will grow with you, from bulk card approvals, to ERP integrations with the big players like NetSuite by Oracle.

As CFO, your focus is rightly on business growth, but governance and control can still play an important part here. Your spend management solution should include company cards and expense management software to ensure that you know who is spending what and why to assess ROI, and optimise ways to save (or even update controls via workflows and built-in spend limits).

Giving employees freedom within a framework

Putting a stop to all spending isn’t how you adequately manage cash flow. First, you must understand where employees are spending and whether these purchases add value to your organisation.

You want to encourage spending as spending can help facilitate growth, but you need to balance this with governance and control. As above, you can do this by introducing spending limits and approval workflows. Both these actions will provide the organisation with autonomy and ensure compliance.

Company cards for employee expenses

Employees want to feel empowered and valued — giving them their own expense cards and individual spending limits can help achieve this while keeping an eye on the purse strings. At Payhawk, we enable you to set individual or group card controls from afar, and you can adjust them whenever you need to — effortless expense management.

Expense management software can help everyone in the organisation to remain focused on the job at hand — building a profitable business model.

Customised approval workflows

Creating customised approval workflows means your approval process is streamlined, and spending can happen without delay. Whoever you put in your approval chains can accept requests on the go and in seconds via the Payhawk app.

Robust in-built workflows like these mean all employees comply with spend policies — and you can rest safely knowing that spending isn’t creeping through the cracks and causing cash flow problems.

Real-time spend visibility means better business decisions

Real-time visibility into your company spending means you always have a clear idea of where your finances are at, too. Quickly create custom data for stakeholders, address issues in real-time, oversee all business subscriptions, and make data-driven decisions to increase the profitability of your business ultimately.

If you’re currently updating your data manually, you’re wasting time and effort when tech could be doing this job for you. Software means more accurate data — it’s as simple as that.

With Payhawk, your data syncs quickly across your ERP/accounting software, which means the data you’re looking at is always correctly matched, minimising human errors — pleasing all stakeholders in the process.

To sum up

Scaling your business brings with it many challenges, and securing funding can be one of them. It’s clear that having good cash flow management processes and the ability to analyse clear and concise financial data is imperative to securing VC investment.

You need to show that your business has potential profitability in the future, and that’s why you shouldn’t hesitate to re-evaluate your business model. Only recently, businesses had to undertake possibly the most significant business transformation due to COVID-19, so your business model should never be static or final. Consumer behaviour changes, and as such, so will the way you spend. And it’s these important factors that will help dictate the future of your business and potential funding.

Learn how Payhawk can help your organisation gain spend visibility, book a demo.