June 19, 2024   |  Read time: 6 minutes

As any business leader knows, the finance function plays a crucial role in managing resources, driving growth, and ensuring sustainability, no matter what the size of your organization. But the way a finance function operates and what it can deliver to the business can vary significantly between large companies and small to medium-sized businesses (SMBs) – yet the need might be identical.

In this blog post, we’ll delve into four key differences in finance functions between these two categories of organizations, explore how their unique characteristics shape their financial strategies, operations, and challenges, and uncover some surprising advantages for SMBs.

1. Scope and Complexity
One of the most notable differences between finance functions in large corporations and SMBs lies in their scope and complexity. Large corporations typically have intricate financial structures, multiple business units, global operations, and a diverse range of financial activities. As a result, their finance functions are multifaceted, comprising specialized departments such as financial planning and analysis, treasury, risk management, investor relations, and mergers and acquisitions. This bench strength of resources and expertise offers an advantage over smaller businesses, enabling them to put more rigor behind their analysis, reporting and forecasting.

In contrast, finance functions in SMBs tend to be more streamlined and less complex. With fewer business units and a narrower scope of operations, SMBs often have small finance teams or a single individual that wears multiple hats, stretching to handle various financial tasks such as accounting, financial reporting, budgeting, and financial analysis. The focus in SMBs is often on managing day-to-day financial operations efficiently and ensuring financial stability. Their resource limitations are a primary barrier to deeper financial analysis and strategy. They simply don’t have the personnel or expertise to do what a larger organization can do.

2. Strategic Focus
Finance functions in large corporations and SMBs also differ in their strategic focus. In large corporations, the finance function plays a pivotal role in driving financial performance, supporting business growth, and maximizing shareholder value. These teams are deeply involved in strategic financial planning, budgeting, forecasting, capital allocation, investment decisions, and high-level strategic initiatives such as mergers and acquisitions.

However, finance functions in SMBs are more focused on operational efficiency, cost control, and ensuring financial stability. While strategic financial planning is essential for SMBs, the focus tends to be on short-term goals and day-to-day financial management. SMBs may prioritize cash flow management, working capital optimization, and profitability analysis to sustain and grow their businesses. Lack of staff and depth of expertise across all areas of the finance function create barriers for SMBs to take a more strategic approach.

3. Resources and Technology
Large corporations typically have deeper resources, both in terms of budget and personnel, which enables them to invest in advanced financial systems, analytics tools, and technology to support their complex financial operations. These organizations often have dedicated teams focused on financial modeling, data analysis, and reporting, allowing them to make informed decisions based on robust financial insights.

In contrast, SMBs may have limited resources and smaller budgets, making it challenging for them to invest in advanced financial technology and systems. As a result, finance functions in SMBs may rely more on manual processes or basic accounting software for financial management, such as spreadsheets, requiring more time to complete ongoing tasks and are prone to human error. However, thanks to cloud computing and artificial intelligence, technology is increasingly becoming available to SMBs to streamline their financial processes, improve reporting accuracy, and enhance decision-making capabilities.

4. Regulatory Compliance and Reporting
Large corporations face more complex regulatory requirements, reporting standards, and compliance challenges due to their size, global operations, and public scrutiny. Finance functions in large corporations must adhere to regulations such as the Sarbanes-Oxley (SOX) Act, International Financial Reporting Standards (IFRS), and industry-specific regulations. These organizations often have dedicated compliance teams to ensure adherence to regulatory requirements and reporting standards.

How SMBs can Effectively Compete with their Larger Counterparts

The differences in finance functions between large corporations and SMBs are shaped by the organizations’ scale, complexity, strategic focus, resources, technology use, and regulatory environment. While large corporations have intricate financial structures, strategic financial planning capabilities, and advanced resources, SMBs are equally challenged to operate in complex business environments but with a fraction of the resources available to them.

Yet despite their extensive resources and specialized departments, larger Finance functions can get bogged down with bureaucracy, rigid processes, and the sheer volume of data and organizational complexity. This leads to slower decision-making and reduced market responsiveness. Additionally, the size of these teams can get unwieldy, resulting in silos within the function, redundancies, communication gaps and inefficiencies.

In contrast, SMBs can use size to their advantage to be more agile and innovative in their approach to finance – and ultimately stay competitive with larger organizations.

1. Flexibility and Speed: SMBs can adapt more quickly to market ups and downs. With smaller, more streamlined teams, decision-making is quicker and new strategies can be implemented faster.

2. Holistic View and Collaboration: In an SMB, finance team members wear multiple hats, which enables broader exposure and understanding of the business. Unlike the silos at their larger counterparts, this holistic view leads to cohesive decisions and close collaboration with other departments, resulting in a more informed and pragmatic business strategy.

3. Leveraging Technology: While large corporations have more advanced systems, SMBs are often early adopters of modern, scalable, cloud-based technologies that are increasingly affordable and accessible. These tools can automate routine tasks, provide real-time financial insights, and support data-driven decision-making, allowing SMBs to punch above their weight.

4. Resource Optimization: Out of necessity, SMBs are masters at being creative with limited resources. The outcome is a more efficient use of available tools and personnel, which fosters a culture of innovation and continuous improvement across the business, including in financial processes.

5. Strategic Focus on Core Activities: With fewer resources, SMBs are laser-focused on core activities that directly impact their bottom line or drive their top line. This sharp focus leads to more meaningful and impactful financial insights, ultimately driving better business performance.

SMBs can leverage their agility and innovation for a competitive advantage and to achieve meaningful financial results. They also have solutions available to them that can enhance their internal capabilities and play into their strengths.

On such solution is Compass™ by EBM.

Compass is a full-service finance solution that combines the expertise of a full finance team with the efficiency and agility of cloud-based, modern data and analytics software. Ideal for small to medium-sized companies, Compass overcomes the challenges many CEOs and business leaders of SMBsface: competing investment priorities, challenges maintaining necessary staffing levels for a range of critical finance functions; fragmented data and disparate data sources, and other barriers to scaling company growth.

With Compass, SMBs gain the same advantage as larger organizations: access expertise, processes, and tools to handle all reporting, analysis, and budgeting needs.

To learn more about Compass and how we can help you, click here.