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The role of CFO or VP of Finance is to establish scalable finance and accounting operations, manage liquidity and cash, be a strategic partner, and craft a narrative for the board to understand. Focusing on operations, finance and accounting teams play critical roles in delivering stakeholder value. While accounting focuses on what has occurred and finance (FP&A) looks ahead to what can occur in the future, the teams must work cohesively to have the greatest impact.
Think of accounting like electricity. It is a modern necessity powering your everyday life, but you don’t think about it all the time. You typically only think about electricity when the power goes out. You scramble to check the electrical box in the garage, make sure no fuses blew, and confirm with your utility provider if there is a local outage. It’s a frantic feeling that completely wrecks your day - especially if you work remotely.
The same holds true for accounting, where executives and investors may not be intimately familiar with the day-to-day accounting cycle or what it takes to close the books. Still, the moment the books are not closed when expected or something in the debits and credits is off, it is all these stakeholders think about. To ensure your finance and accounting function is efficiently and effectively supporting the business, consider implementing these F&A process improvements.
An all-too-familiar occurrence is the discrepancy between the metrics the sales and operations staff work from and the actuals finance and accounting report on. This disconnect leads to wasted time comparing and reconciling numbers and results rather than focusing capacity on solving critical strategic initiatives.
The finance team should spearhead developing a single source of truth for business performance and disseminate the information across the organization so everyone operates from the same metrics. This can be a laborious process if you rely solely on Excel to consolidate multiple systems as the gift and the curse of spreadsheets make it prone to error and unable to process vast amounts of data. Instead, consider purpose-built FP&A tools to automate reconciled report production, accurately track budget versus actual results and forecast at a level of detail necessary to hold budget owners accountable.
You can’t analyze the business effectively if it takes you weeks to close the books. To whittle down the time it takes to close the books, develop a checklist of close items and assign those tasks accordingly. The tasks should build on each other, so fundamental processes like cash and bank reconciliations are prioritized before moving to roll forwards and other items.
Even with a lean accounting team, having a detailed and consistent reconciliation workflow allows contributors to own their process, refine and improve upon it. An organized closing process will quickly reveal where bottlenecks remain and where opportunities for automation can be applied.
Financial forecasting is critical in providing management with a view of potential outcomes, identifying if course corrective action is necessary and informing decision makers to promote accountability. Forecasting can be a challenging task to carry out, but the effort is worthwhile. As Stanford Professor Paul Saffo puts it, “the goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.”
Inevitably, your forecast will not be precise, but it should be directionally accurate and at a level of vendor and customer detail necessary to guide decision makers. Treat your forecasts like a scientific experiment, where you tweak the dials as you accumulate results and gather insights from budget owners to iterate.
Having the right information in the hands of the right stakeholder at the right time is a recipe for success. For finance, accumulating and analyzing the company’s results and metrics are the first steps. Still, high-quality analysis also includes insights and solutions to overcome your key stakeholders' challenges.
To facilitate agile decision making, high-impact finance professionals analyze with a keen eye towards the how and why behind a result that management teams and the board are most interested in. Taking a holistic view, while also considering the drivers impacting results allows you to deliver timely and actionable insights.
When conducting analysis, you should have a solid grasp of the concentration of your customer revenue contributors, their profiles, and how to position the company to mitigate churn risks. Think of your revenue by customer and cohort breakdown like a balanced portfolio, it should be well-diversified and not overly concentrated to reduce risk.
Certainly, closing a new enterprise deal or two well above your average annual contract value (ACV) can skew the distribution, nonetheless you want to avoid being too heavily concentrated and reliant on any one customer or cohort for too long. Identifying your top 10 or 20 customers is a great starting point. As you examine your revenue streams, consider which cohorts, personas and industries are the strongest, and which might present opportunities for growth.
Let’s face it, we’re all addicted to Excel, almost as much as our morning (and afternoon) cup of coffee. There’s nothing wrong with Excel for basic modeling and reporting; however, it is not intended to be a database synchronizing multiple systems and various data structures. Just count the number of times per week your computer stops to load a spreadsheet calculation or reference. From a finance tech stack, we then turn to enterprise resource planning (ERP) and accounting software with general ledgers necessary to record our transactions and balance debits and credits.
The rigidity of accounting systems is necessary to consolidate and reconcile your financial data, but that rigidity also limits your ability to slice and dice data for analysis and reporting packages. There’s a reason there are more corporate performance management (CPM) and FP&A software tools on the market than you can even count or evaluate.
Purpose-built FP&A tools integrate data from multiple systems and unlock your data to automate reporting, plus simplify forecasting and budgeting in a collaborative and controlled environment. It also gives you flexibility to analyze groups of financial and operational data in cross-sections, based on specific drivers, to provide ad-hoc reports and analysis.
CFOs and executives face an uphill battle in the competition to hire quality talent with the finance and accounting knowledge and technical acumen to work with large, complex data sets. In the most recent Duke University and Richmond Fed CFO Survey, finance executives cited the quality and availability of labor as the most pressing concern, tied with monetary policy.
Your current F&A team might be all you need at the current state, but as the business scales, so will the needs and demands of finance. This is especially true if you take on additional funding or go through a transaction, where sponsors require specific metrics and reporting packages.
Some outsourced finance and accounting firms provide cost-effective resources and expertise from seasoned professionals who can jump right in to solve critical challenges and optimize processes. They possess the skills, knowledge and battle-tested methodologies you may otherwise struggle to attract, hire and retain in-house.
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