As a business advisor, I get to see a lot of different businesses and their finance functions. At one end of the spectrum, the finance function just does the basics i.e processing invoices, managing cash and preparing the core reports. At the other end of the spectrum, the finance function is a key strategic partner to the senior management – whether that be an owner-manager or a full management team. And between those two extremes, there can be a range of options.
In this article, I will set out what I consider to be the key elements that make up an excellent finance function. No matter how the finance function is structured, it is essential that the management team have access to resources to help them understand, interpret and communicate the relevant data needed to support them in keeping the business on track.
In my experience, there are 6 key elements that come together to create an excellent finance function.
The elements of finance function
- A foundation made up of the core finance systems
- Insightful data that can be analysed as needed
- An excellent understanding of the business
- Outstanding Influencing Skills
- A supportive attitude
- Responding Resourcefully
1. The Foundation – Core Systems
Firstly, the basics must be in place and must work unnoticed. There will be appropriate systems that process the transactions – sales invoices, purchase invoices, receipts and payments – smoothly and efficiently. Key controls must operate to secure the assets of the business. The basic reports must be readily available within short timeframes. Essentially, we are looking at a lean operation – delivering what the customers of the function need with minimal intervention.
The one thing that can be guaranteed to cause the users of financial information to lose confidence is if the basic information is not reliable.
Pillar 1 – Insightful data designed to deliver the required information
Next, consideration should be given to the type of information and analysis that will be useful. The systems should be designed to collect relevant data and be able to report easily on the data. Management should have considered what type of analysis will be required and the finance systems should be designed to capture that key information when the core transactions are being created so that the reports are available with minimal extra manipulation.
For example, if a distribution company has a goal of maintaining its sales to multiples while significantly growing its sales to independents, I would expect to be able to be able to quickly pull reports that show how sales are split between multiples and independents. To do that, each customer will be categorised and then finance can easily run a report showing sales by customer category.
Pillar 2 – Understanding the business
An excellent CFO will have a very good understanding of the business and will be always aware of what is happening. To be able to evaluate how events will impact on the profitability and on cash flow, the CFO will intuitively understand the relationships within the business.
For example, if sales in the business are switching from high labour products to low labour products, the CFO will have a sense of the impact of this and this would likely trigger an analysis of the specific impact on headcount enabling the business to respond proactively.
To develop this awareness, the CFO will spend time walking around the business understanding what happens within the business and talking to key people whether that be operators or management. This CFO will have good relationships with the other managers and will keep himself or herself informed of what is going on in the business. I would expect the CFO to run projections a several times a year and then to compare the projections with the outcomes. In this way the CFO will be testing and developing his/her understanding of the business.
Pillar 3 – Outstanding Influence Skills in relation to finance function
The third pillar for an excellent finance function is to be able to influence key people. These key people can be management colleagues, direct reports, funders, customers or suppliers. To be a key influencer you must know what is important to the audience and you must be able to communicate simply and clearly.
Pillar 4 – A Supportive Attitude to finance function
A great CFO will understand that Finance is a support function and that its role is to help operations and the other departments to deliver the product or service. Because everyone will not have financial acumen, the CFO will be alert for opportunities to help the other functions and to use finance constructively for the benefit of the business.
It is also important to be able to nurture that attitude throughout the finance staff. The CFO can’t do everything and needs to have a like-minded team around him or her so that the CFO can delegate well while focusing on what’s important. This is done by hiring well, by managing well and by being an excellent role model for how an excellent finance professional operates.
The Roof – Responding Resourcefully to finance function
When a finance function has the basics right, curates key information, understands the business, operates supportively and is a key influencer, the function can then respond resourcefully for the business by evaluating the events that are happening so that opportunities can be grasped and problems can be anticipated.
It’s probably true to say that for a really great CFO, technical ability is less important than the CFO’s ability to influence strategic discussions with useful analysis of timely, relevant and accurate data. This ability comes from understanding how the business works, understanding what’s important to the business and to the management colleagues and then being able to use that understanding to make a difference to how the business addresses the key issues that it faces.
Having read this article, what are the elements you need to focus on in order to improve your finance function? Why not rate each element as it is in your organisation. Then prioritise the elements you need to work on, preparing a one-page plan with attachments around specific action plans if required.
If you need help developing your one page action plan, feel free to contact me.