Finance Department 2018: A vision and how to get there
The proactive finance function
The finance function in the year 2018 is proactive. And if you’re one of those people who suffers an allergy to buzzwords like proactive, allow us to explain: proactive is the opposite of reactive.
In the best case, a reactive finance department delivers correct figures on time. They spend a lot of time looking for mistakes made in the past, making corrections to the bookkeeping and adjusting reports. They never really perform important analyses or broaden their view to see the big picture.
By contrast, the proactive finance department is streamlined, with every single work process mapped out and optimised for maximum efficiency. All input data is digital, of course, and is processed in systems that talk to each other.
Such an environment allows you, the CFO, to adopt a forward-looking approach and to deliver analyses and reports that drive the company’s business. When you are able to focus on the present and what lies ahead, you achieve the desired results more quickly than if you simply look back at historical data. Checks in real time also eliminate errors at source, preventing unnecessary repetitive behaviours.
When day-to-day work flows as it should, you can work close to the business and build an understanding of which factors affect the company’s success. You also have time to monitor your market and an opportunity to make contacts with important stakeholders in your environment.
Equipped with this understanding of the business as well as external factors, you can quickly draw well-founded conclusions about how events within and outside the company will affect the company’s financial results, in both the short term and the slightly longer term.
The CFO should ask questions that drive change
How profitable is the product/service/business area/customer/employee group in reality, in relation to other examples of the same
Do we have base data to perform the analyses we need?
Do we have sufficiently detailed reporting to build a dynamic follow-up model?
Do we report in a sufficient number of dimensions and do we import other relevant data to make commercial analysis possible?
What are the bottlenecks in the processes? What do we do? How and in what order?
Why does a process take so long and why can’t it be finished more quickly?
How do you get there?
The ability of the finance department to work efficiently is often very dependent on the IT structure and the systems that have been chosen. You need an IT structure that gives you access to correct, updated data from various sources. Deficiencies in IT support will soon see you losing lots of time tied up in endless rounds of checks and balances. The other major factor is how the finance function is organised.
Digitalization and automation
Digital input data is a basic prerequisite. Among other things, you can now digitalize:
Incoming and outgoing invoices
Travel expense claims
According to Visma’s digitalization index from 2017, Swedish companies still have much to do when it comes to digitalizing the finance function. Only 28.2% of supplier invoices are fully digital (i.e. proper e-invoices as opposed to PDF invoices), compared with Finland where 60% are digital. It is surprising that automatic payments have fallen compared with the previous year’s survey.
Digitalization does not, however, bring major time gains in itself, but is rather a prerequisite for being able to automate work processes later on in the flow. For example, the finance function saves a lot of time by automatically importing, posting and attesting supplier invoices according to predefined rules. For customer invoices, the invoice delivery and cash flow situation are improved. Automatic payments involve a direct transfer of payment data to the bank, and automatic reporting back to the business system.
There has been a lot of progress lately in the area of travel expense claims. You can save a lot of time here by having employees photograph all receipts for expenditure using their mobile, after which the values are interpreted and sent to the payroll system. Some receipt apps alert you if there is a problem, and ask for more information (e.g. list of attendees in connection with entertainment).
Organise for proactivity and change
Apart from systems and tools, an organisation is also needed in which the CFO and Business Controllers are able and prepared to assume a driving role, a role that involves questioning and challenging established procedures and work methods. As a CFO, you must create an organisation in which the finance department has the confidence to stand up and act. The accountants of the past who simply reported correct figures to management are a dying breed.
Yet in many companies, the finance function is still viewed as a background player. The finance function nowadays can and should be a player in the foreground, a function that contributes analyses and reports that make it easier for management and the business to make well-founded decisions.
From a management perspective, a proactive finance function is generally desired. It is seen as a good thing if the finance department is bold enough to raise the alarm to say that the company appears to be heading in the wrong direction.
Many CFOs feel that they do not have sufficient resources in the finance department. Here, however, we see that a lot can be achieved by mapping out the competence that exists and in some cases reorganising a little. We also often see resources not being fully utilised because of unclear roles, blurred limits of responsibility, etc.
External specialist expertise when required
The resources that are freed up thanks to efficient system solutions, processes and organisation can be put to good use in one-off measures and risk elimination. A future-oriented CFO is not afraid to bring in external help to further rationalise work. Areas where help is often sought are:
Legal expertise to monitor legislation and industry-specific rules
Review of cumbersome budget processes