Financial Infrastructure: Plan Early for Profitable Growth

A look at one company's plan to hire a CFO early and how that helped it achieve success.

Many entrepreneurs make a big mistake. they start out with great business ideas and plenty of marketing savvy but have completely inadequate and untested financial infrastructures. Too often the result is growth without profitability, as well as cash-flow crises that jeopardize their companies' future.

Steve Simon, the founder and CEO of $24-million AutoLend Group, a Miami Beach, Fla., used-car-financing company, was determined to sidestep that blunder. "I had a vision of a fast-growing company that could fund its growth internally until it proved its creditworthiness in the marketplace," he recalls. "I knew that in order to achieve all those goals, we had to set in place a top-quality financial infrastructure from day one."

Simon's first step toward achieving his goal was to hire a chief financial officer in 1993; he hired other qualified financial managers early in 1994, two months before AutoLend even began operations. "They're the key to credibility in the capital and banking markets," he emphasizes, "and also to profitability. You simply can't stay in business for very long if you don't know how to evaluate credit risks and collect outstanding receivables."

Fortunately for Simon, South Florida's banking industry was in the midst of a contraction. "That gave us a tremendous pool of qualified people to choose from," he notes. "Our average midlevel department manager has more than 24 years of consumer-finance experience, which provides us a tremendous leg up in the marketplace."

After Simon had hired the right team and chosen a sophisticated financial-services software package -- one that was geared specifically to the automobile-sales-financing industry -- he decided to stage a dry run of all systems. "The idea came to me when my wife and I went to eat at a new restaurant that had opened to great fanfare. We went on its second night and found that the staff members were in a shambles. I thought, 'Why didn't they just invite their friends and pretend to be in business one night before opening?'"

In AutoLend's dress rehearsal, Simon arranged for mock credit applications and phone calls from prospective customers to inundate his employees, who had no idea that all the activity was just a test. "I wanted to see how my team handled credit checks, processed information into our computer system, and communicated among departments," he explains. "Since our customers are what we call 'credit-challenged' -- that is, they're high credit risks -- we don't have much margin for error." After about three weeks, systems proved ready to go.

Twelve months after starting his company, Simon prides himself on being "right on target with my original business projections, which include profitability during this fiscal year." He attributes that achievement to another of his start-up innovations: tracking financial performance on a daily basis. (See "The No-Surprises Daily Money Watcher," [Article link].) "When you run a fast-growing start-up, you cannot have any surprises. That's the way to build credibility."

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