8Jan-Feb 2017Financial Engineering in a Hyper-Growth EnvironmentBy Brian Patterson, CFO, USSIn my career I've had the privilege of working for several fast-growing companies, but nothing compares to the rate of growth of my current employer, USS. Last year we doubled the sales and doubled the number of employees. And this is a 20-year-old company in a mature industry.For 2016, we've set even loftier goals, which made me reflect on the question of what a CFO has to do to manage growth effectively. Three areas, I believe, deserve the most attention. I'll go through them one by one:Financing With Speed and AgilityThe first question we faced was whether to finance with debt or equity. Debt is less expensive, but has tighter constraints that can slow the pace of growth. An equity option promises fewer restrictions, but it means the dilution of the owner's equity, and can be expensive early in the growth curve. Which one is better?Given the current cost of money, I believe the best funding for growth comes from the debt model. This requires an owner with a thick skin who can accept carrying debt, an interest rate that's palatable, and, of course, a bank that understands the strategy and believes in it.Growing on a conventional asset-based model means being front-end loaded on spending. The bank is, in essence, investing in you for future gain. Your banking partner must buy into your aggressive growth curve, buy into the leverage that impacts covenant ratios, and be agreeable to that process. In the case of USS, as we develop our plans, we share those with our banking partners. They have become not just providers of working capital; they are in many ways our partners in business.Debt is not always the best option for growth, of course. When moving to a mergers and acquisition strategy, for example, more risk is encountered. Then it makes sense to share some of the risk with an equity partner. The owner's equity does get diluted, but in a lesser measure than when the company is small. The optimal approach, in my experience, is to go as far as possible with the debt model, then switch to an equity model when the company gets larger.Building Systems to Support GrowthA good CFO always has the finger on the financial pulse of the organization. When growing fast, the pulse is racing. The goal In My OpinionWorking for a company that is growing furiously is both fun and challenging. The fun comes from seeing the results of your hard work before the ink on your plans has dried. The challenge is ­ well, you'd better get things right on the first try or those results will be quite different than what you, your shareholders, and investors expect.Brian Patterson
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