By Maurie Cashman
The finance function of a business is generally the first place that a buyer, whether internal or external, is going to look to gather information about a business. Of course they are going to do a little basic research to see whether or not the business is in an industry that they want to be part of. However, beyond that, the financials are probably the most key factor in determining the performance, relative competitiveness and ultimately the value of the business.
The finance function is also the key to operating a profitable, growing and healthy business. The financials are your eyes and ears on the business and can either help to lead you to good short and long term decisions by providing clear and accurate information or can fool you into thinking you are performing better than you are if they are inaccurate, unclear or you donâ€™t understand them.
In an August 2015 Grant Thornton CFO Survey, when considering improvements to their finance function in the next year, nearly half of executives (48%) plan to improve their use of analytics and business intelligence. Forty-five percent indicate plans to improve their teamâ€™s use of forecasting, budgeting and planning. These two functions are especially popular plans for executives from large companies (64% and 54% respectively) compared to those from small companies (45% and 44% respectively). A third popular improvement plan for executives from large companies is transactions processing (32%).
Finding and Retaining the Right Talent
The top issue is finding and retaining the right talent. It makes little sense to install an expensive financial infrastructure system if your team doesnâ€™t understand the basics of business finance, financial controls and interpreting and reporting information to the management team that they can make use of. Without this talent, you may be merely institutionalizing (and possibly amplifying) the effect of poor decision making.
Again the Grant Thornton Survey indicates: Executives donâ€™t agree on which skills their finance team needs most to achieve their desired business growth. On average, core financial analysis skills are ranked the most important, followed closely by broad business skills second, value-added, strategic skills third and technical skills fourth.
Many entrepreneurial companies grew up around a â€œbookkeepingâ€ mentality and may not recognize the critical need to upgrade talent and systems or even where to start. It may be very difficult for a mid-sized company to afford the kind of talent needed. We are seeing an increased interest in outsourcing the high level over site of this function.
Maintaining Efficient Processes
The finance function has evolved to be much more than simply getting the red beans in the red jar and the yellow in the yellow jar. In successful companies it is now integrated into the operating systems so that inventory control, purchasing, billing, accounts receivable, sales, performance analysis, accounting, budgeting and projections are integrated. In order for these functions to work well together it is critical that each process in your business is documented and examined to find ways to eliminate waste and to streamline the collection and delivery of critical information.
Maintaining Efficient Systems
Systems are somewhat different than processes. The processes must feed into and support the overall systems. Many companies make the mistake of installing what someone sells them as an efficient system before they have identified what the processes are.
Once you have processes in place it is time to install the overall system that will integrate all into one system that can deliver a â€œdashboardâ€ of information to key management. Think of it like your car or truck. If you are carrying a heavy load or driving in the mountains you may need a tachometer. If not, you will rarely realize it is there. If the vehicle delivered every piece of information it was monitoring to you your car would look like the cockpit of the Apollo 13 space module. You need what you need when you need it.
Transparency and Visibility Into Operations
In my experience, nothing is worse than a system that delivers so much information that it is impossible to assimilate or analyze it in a useful manner. No system may be better than this. Focus your financial function on delivering the information critical to making tactical and strategic decisions and on maintaining controls on the rest and you will be miles ahead.
Quality and Reliability of Third Party Suppliers
Earlier I made the statement that many companies were outsourcing parts of the financial function. It is critical that you make the right choice of third-party supplier. It is likely not what you would think. I would break this into two categories:
- A good generalist who has broad business background and understands how to utilize the financial function to make the business more efficient, profitable and valuable;
- A good tax advisor. Be sure they are keeping up on the latest trends in multiple areas and that you meet with them at least once a year to review your business. Donâ€™t simply sign your return, thinking it is correct, without your internal financial person reviewing and signing off on it.
Next week weâ€™ll dive a bit deeper into four skills you may require of those operating your financial function.