Your finance team should not be studying history

If your finance team is taking more than three days to close your monthly accounts, they are spending too much time. Month-end reporting is archaeology. It's for dinosaurs.

There are about twenty working days in a month, so every day your finance team takes to do monthly reporting is 5% of the month. SMEs should close in two to three days. This frees more time for finance to look forward, not backwards.

Often, the finance team has been told to police mistakes, not stop the pollution at the source. The team is expected to reconcile petty cash to the cent, but not to forecast the cashflow impact of a sudden drop in sales next month. They'll fight a customer to the death over a $5 underpayment, but don't realise that the business has wasted $100,000 buying excess stock. While accounts is trying to understand a double booking of an invoice, the supplier has put you on credit hold and customers are cancelling orders.

A new mission for SME Finance: Growth

Most finance teams already have anlalytic people with good analysis skills. The transformation is mostly about setting new expectations. There are many different approaches to finance transformation, mostly aimed at large companies. The GrowthPath approach is aimed at SMEs. Your finance team should focus its effort equally in four areas.

The four roles of the growth-oriented Finance team

1. Business control

  • Safeguarding assets, reporting, forecasting, compliance.

2. Decision support

  • Helping management understand which are the important decisions
  • Finding the key drivers of the business: those few indicators, probably not in the accounts, which make the most difference to the business.
  • Simple modelling and scenarios to focus on the important assumptions and uncertainties.

3. Optimising and increasing cash flow

  • Improve returns to the business owners. Understand how parts of the business link together. Recommend decisions which balance risk and reward, as opposed to simply avoiding risk.
  • Look forwards, not just backwards.Identify performance problems before they affect results, not after.

4. Speed and efficiency

  • Finance needs to be as fast as possible, so provide relevant and timely information, not stale data.
  • Finance must innovate to get faster at routine activities, which frees up time for finance to help improve the business.

There are 20 working days in a month. Every day that closing takes is 5% of finance's capacity. A  business of less than $100m should get through monthly closing in two to three days. Some take nearly two weeks.

These four pillars are the mission of finance.

Transforming the team so it can deliver on this mission is a six step process which is mainly focused on coaching, new skills and process innovation.

Implementation: Six Steps to transform an SME finance team

  1. Review what is really driving performance to find the key indicators and the important day-to-day decisions being made in the businesses. Review your forecasting process and the sales and margin target-setting process. Look for the alignment between how you set targets, how you forecast and what's really driving yours sales people and your customers. Throw away complicated forecasts and budgets.
  2. Review the sources of information being used by decision makers. Verify that these align to the analysis effort and reporting effort from finance. In other words, is the finance team really reporting and analysing on what is influencing business decisions? How often are ad hoc report used? How often is information used which doesn't come from the Finance team and its reporting systems?

  3. Give the finance team its new mission, and deploy to the whole organisation (read more here).

  4. Simplify traditional finance team tasks to free time for the new mission; you do this, rather than hire more people. Pay attention to monthly closing. While it is necessary to produce accurate monthly reports, each day spent closing means 5% of the month is spent on archaeology rather than helping the business grow and adapt.

  5. Use coaching techniques to build better understanding in the finance team of how the businesses creates value for its customers. Take a skills inventory of the team and create development plans to allow the team to understand the business. Consider partnering people with sales or channel managers. Development of the finance team is vital for this effort to succeed; it has a big spin off: better retention. Read more here.
  6. Develop stronger IT skills to capture and use valuable information outside the accounting system and to support requests for ad hoc analysis. A key skill to consider is SQL. Most SME accounting systems support SQL, even MYOB. Basic SQL skills allow very useful spreadsheets to be built quickly without IT support, allowing finance to provide almost instant support for decision makers.