By Jack Perkins, founder at CFO Hub, which provides on-demand CFO, Controller, Accounting, and HR services.
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Managing your financial operations is essential to achieving success in your business activities, with accounting and finance teams providing vital financial task completion and information to support key leaders.
Those leaders rely on well-executed, timely processes and receiving accurate data from those teams to make strategic decisions that reduce costs, increase efficiencies and focus on value-add activities.
But if your financial processes are inefficient and the right technologies haven’t been implemented, you’ll lack the visibility and control necessary to survive in today’s hyper-competitive market.
The good news is that no matter where your finance operations fall along the maturity curve, there are practical steps you can take to optimize your processes and performance.
1. Create a clear view of all business processes with process mining.
Finance processes are ripe for optimization. According to McKinsey, 42% of all finance functions could be fully automated, and a further 19% could be mostly automated.
And yet, an all-too-common problem is that business leaders lack a clear understanding of all their financial processes. That issue is only compounded by the fact that there tends to be a misalignment between how those processes function in theory and their actual execution.
As Ernst and Young notes, the dissonance between theory and practical application puts business leaders on dangerous footing: “[I]f compliance with written processes is inadequate, or completely absent, you risk that certain checks are skipped, or that decisions are taken based on incomplete or incorrect information.”
One of the most effective methods for addressing this issue is process mining, which can create models and simulations based on your actual event logs. Similarly, sophisticated process mining software can help identify where your recorded event logs deviate from your models.
By deploying this powerful analytics software, you can capture data from your various systems and actual process execution to create end-to-end clarity.
2. Ask yourself ‘why?’
Once all of your financial processes have been mapped, you’re almost ready to act.
But before you make any changes to a particular process, your first task is to ask why it’s even there in the first place. In many instances, processes exist simply because they’ve always been done that way.
But could they be done in a better way? In fewer steps? Or could they be deleted altogether?
While process mapping can help identify areas for improvement, there are certain aspects unique to your company that automated systems—no matter how powerful—simply can’t address.
For instance, there could be legacy technology implementations that create informational silos, inefficient reporting processes, outdated compliance efforts or tasks that require your financial and accounting experts to waste time on tedious, manual work. Whatever the issue, asking “why” supplements your process mapping.
By combining the two, you can make necessary changes to:
• Improve productivity
• Drive efficiency
• Ensure compliance
• Strengthen risk management
• Prevent bottlenecks
3. Leverage an ERP for the month-end close.
The faster your reconciliation process, the better. According to Deloitte, “Top performers close, consolidate, and report in an average of 10 days while the bottom performers take anywhere between 20 and 30 days.”
Financial operations tend to be at the mercy of the month-end close. All other business activities fall by the wayside—or, at least, get put on the back burner—as the accounting team’s time is consumed with month-end activities like:
• Journal entry capture
• Financial statement preparation
• Transaction processing and reconciliation
The more time you spend on reconciliation, the less time your financial operations have to focus on analytical insights and value-add decision-making efforts.
How, then, can you speed up the process? How can you shoot for the best-in-class closing standard of two to three days?
Once more, technology can automate away many of these problems.
Admittedly, an ERP system can’t automate all aspects of close, consolidation and reporting. But it can address the more unproductive areas or bandwidth wasted on manual data entry and error remediation.
Integrating with a centralized ERP system can at least synchronize all of your financial systems and resources and keep them up to date. As a result, you can prevent much of the confusion and needless complexity resulting from various finance teams contending with siloed data that may be incomplete or inaccurate.
4. Think beyond transactional activities.
Financial operations improvements tend to focus on transactional functions like accounts payable and receivable. That’s because such activities tend to be easier to automate.
As a result, many of the processes have already undergone drastic improvements. And while there may still be room for further optimization, the ROI on such initiatives can be diminishing.
Instead, McKinsey suggests that you look to the strategic areas of your financial operations, such as:
• Financial planning and analysis
• Optimizing capital structures
• Tax planning
• Controllership
• Internal audit
• Financial risk management
By focusing your efforts on value-add financial pursuits, you can unlock internal efficiencies and make better use of staff time.
Drive improvements across your financial operations.
Finding areas to improve your financial operations may seem like a daunting task. But it doesn’t need to be—not if you take a strategic, measured approach that leverages the various technologies available to you. It all starts with visibility.
Gain visibility over your financial processes and data, and you can gain control over your operations.
