Updated: May 19, 2022
The financial operations of your business are critically important. This is true from start-up to wind-up, including growth and decline phases, where the impacts of profitability and cash flow continue in their importance, as do the ongoing compliance requirements with respect to regulatory reporting, financial reporting and taxes.
The extent of your financial operations will inevitably change through a business lifecycle. It’s not uncommon for business owners to do their own bookkeeping at the beginning, eventually realizing the need to hire or outsource as they get busier. Regardless of the size or stage of the business, however, there are very specific areas that most often fall within financial operations that are important to address. The following is a brief summary of each of these areas, which I have listed here from the theoretical perspective of coming into your company as a finance head, such as a Controller or Director of Finance. Each area can be elaborated on, likely in its own post, which I’ll perhaps tackle at some point in the future.
I list this first, from the perspective of any new finance head coming into their position, as knowing deadlines is of utmost importance. This includes deadlines for financial reporting, payroll, remittances, renewals, vendor payment, etc. Either way, you will become aware of your deadlines. It is best to ensure you are proactively aware of them, as becoming aware of them as they are missed could be described as the opposite of best practice. As an employer, you don’t want to miss payroll deadlines, as a taxpayer you don’t want to pay penalties or interest on missed filing or payment deadlines, in order to maintain strong working relationships with quality vendors you don’t want to miss invoice payment deadlines…you get the picture. Deadlines are critical. A good and simple practice for this is to be diligent in having all deadlines in calendars. Whether it’s your Outlook or Google calendar, or even if it’s a calendar on the wall, it is very important to have your deadlines identified and flagged on the calendar, with notifications/reminders if possible.
These are requirements of your company in order to remain compliant in some form. This could be compliance with tax legislation, by way of reporting and remittances, it could be regulatory reporting for specific industries, workers insurance reporting, specific lending covenants, third party reporting requirements such as those from lenders or bonding companies, or even contractual compliance requirements. These very often tie in directly with the financial operations of the company, and so clearly identifying all of your compliance requirements is incredibly important for your financial operations in general, as dropping a ball somewhere within the scope of compliance requirements could have a serious impact on your business as a whole, such as exclusion from eligibility for large contracts, hefty penalties, and even the risk of the company closing altogether. Compliance requirements generally have associated deadlines, and so first outlining your deadlines, as discussed previously, will help you identify the specific compliance requirements that you may have.
Once you have identified your deadlines and compliance requirements, this will help establish some, but not necessarily all, of your reporting needs. Compliance requirements, such as reviewed or audited financial statements, will have specific reporting needs in terms of the accounting framework that is required. In addition to this, shareholders of private companies may have specific reporting needs. Perhaps the company’s senior management will have their own specific reporting needs for decision making. Perhaps various departments will have reporting needs for their own departmental operations. Understanding what all the reporting needs are is important to (1) establish which accounting framework is necessary, (2) establish which reports need to be generated, for whom and when, and (3) ensure that your chart of accounts and financial reports are set up appropriately for the identified reporting needs of the various users. This can get as granular as standardized categorizable descriptions when posting any entries to the GL, so that subsequent data analysis in Excel or PowerBI can be more effective.
Also important within the reporting needs is ensuring that the foundation, the balance sheet, is substantiated. That is to say, review the balances making up your balance sheet, and confirm that they agree with the actual existence and values of the assets and liabilities represented. If there have been some gaps in your financial operations, whether due to staffing capacity or simply not yet having sufficiently resourced the accounting and finance operations for your business, whatever the reason may be, there is an increased likelihood that the balances on your balance sheet may not accurately reflect the actual financial position of the company. Not addressing this earlier in this process may result in significant adjustments to the income statement at the end of the fiscal year, in order to get your balance sheet in order, which may then come with other ramifications, including potential tax implications, and so ensuring each line on the balance sheet is substantiated is a very important step here.
While it’s important to take full stock of the scope of the finance department in a company, it’s listed fourth here as the urgent items, such as deadlines, compliance requirements, and reporting needs have now been identified, and these inform much of the departmental scope. For a Controller coming into a company, this is something that will be determined concurrently with the prior areas, but it’s more of an overarching area that may be more fluid, and is therefore generally less urgent compared to the preceding 3 sections. It’s worth noting here that the assumption would be that the preceding sections would fall within the departmental scope, and so would already need to be addressed. When defining the scope of the finance department for a company, it’s important to consider specific departmental responsibilities and deliverables. This generally includes the areas previously listed, but also includes all of the input activities, such as accounts receivable and accounts payable, which have a direct impact on cash flow, cost control, budgeting, forecasting, and monitoring of key performance indicators. It’s not uncommon that there will be inter-departmental scope, such as activities impacting product or project delivery (such as with the manufacturing or project management departments), or human resources, or IT, and it’s also very common for the finance department to oversee insurance as part of risk management responsibilities, and so defining the full scope of activities and deliverables within the finance department, once there is a solid understanding of deadlines, compliance requirements and reporting needs, is very important, as this helps to better understand the systems and processes that will be required, as well as the team that will need to be established. These I will talk about next.
Systems and Processes
Understanding the full scope of the finance department’s deliverables is important in considering the systems and processes that need to be put in place in order to do the work. It’s properly placing the horse before the cart, so to speak, because jumping at the most popular/shiny tech platform or ERP system, before fully understanding the finance department’s scope, may result in expending a lot of resources (translated “time and money”), and finding that some things may not work well for what you need. When systems and processes don’t work well for what you need, it can get expensive, and it can also end up eating into the operational capacity of the team, who end up dealing with workarounds or spending time on things that could otherwise be streamlined with the appropriate systems.
Documenting your workflows, and even your procedures (often referred to as Standard Operating Procedures, or SOP’s), is very important, as it helps you understand how it is that the work in the finance department is done specifically. I have found that workflow inefficiencies within the office environment can often go unnoticed, because people are not really physically moving through the inefficiencies in the way they would in, say, a manufacturing environment or construction site environment. These inefficiencies come in the form of unclear hand-off points for work, unclear or non-existent timing expectations to complete a task after receiving it, lack of standardization on how specific tasks are done which results in a lot of trial-and-error being repeated and lost opportunity for optimization, and lack of clearly defined roles and responsibilities for team members which can cause some of the more ambiguous tasks to hang in limbo as, when everyone is responsible for something, then no one is responsible for it.
There is a very valuable exercise, called value-stream-mapping (VSM), which allows you to map out specific workflows and hand-off points, and to dive into each step along the way. This exercise is incredibly helpful in identifying steps that need to be done for specific workflows, who does each step, how long each step should take, and how long the transition should be between each step. Each step can then have its own specific SOP, which allows for continued review and optimization of best practices on how that step is done. Diving this deep into your systems and workflows may result in the identification of significant opportunities for efficiencies, and potential opportunities for the implementation of more streamlined systems and automation.
Systems and processes are vital for a company to thrive, like well oiled components of an engine that are vital for a vehicle to drive, and I can go on about them much longer than you likely have time for, or have interest to get into at this point. There are additional items such as internal controls, policies, period-end closing procedures, and established daily rhythms for each member of the team to ensure specific things are being done, and consistently in the way they should be done, and each item could be its own lengthy post or discussion. The point is this: systems and processes should be designed to effectively and efficiently accomplish the finance department’s scope of responsibilities and deliverables, and these need to take into consideration the specific reporting needs by various users, compliance requirements, and deadlines. Ensuring these systems and processes are effective and efficient will have a significant impact on profitability, customer and vendor relationships, working capacity of your finance department, and overall quality of work. In other words, it’s not a stone that can be left unturned.
This is the last section in this post, but is by no means the least important. Your team will be the people who are carrying out the work of the finance department, which, when stated in reverse means, the work of the finance department will not happen without the people on your team. The reason why I put team last here is this; it is incredibly important that you set up your systems and processes, and that you hire the right people for your team who can get on board with these systems and processes. This way, generally speaking, if something goes wrong for whatever reason, the most reasonable approach is to first look at the process, and if there was adequate training, rather than looking for a person to blame. The assumption there being that, if you are hiring the right people for the team, and ensuring they are properly trained for their role, issues that arise are generally process issues that need to be tweaked, or training enhancements; not issues from people who are to be blamed. This is such an important point to emphasize, and is a very common fault-line (no pun intended) between companies with positive compared to negative corporate culture. I have seen my fair share of organizations with a tendency to find fault and blame people when something goes wrong, rather than look at potential underlying internal processes or training, and it doesn’t bode well for corporate culture. Look, there will be times when it’s an issue with a particular person, and then it needs to be dealt with accordingly, but if the default is to first look at the process rather than blaming the person, it will allow for a much more open and trusting work environment, where people don’t feel the need to be looking over their shoulder and covering their tracks if they make a mistake. From my perspective, I realize that it’s inevitable that a mistake will occur at some point - they are bound to happen as we are human and make mistakes - and I would much rather be informed about a mistake by someone on my team so that we can work on resolving it together, rather than having it come up down the road when it may have the potential to have grown into a much bigger problem that requires more work, and likely greater urgency, to resolve.
For your team, it is also important to ensure that each person on the team has clearly defined roles and accountabilities. You know, teasing as much out of the “other duties as required” line on the job description, so that most tasks are specific and intentional. I’ve found it to be good practice to have the departmental goal, and the position goal, to be at the top of the position description, as working toward these two goals should inform and be the purpose of every specific task listed in the position description and, ultimately, these goals should be aligned with the overall company’s mission and vision.
A very effective rhythm that I recommend for your team is having daily morning huddles, or stand-up meetings, which really don’t need to take longer than a few minutes, to discuss the key items that each person has on the go for the day, and to bring up any existing challenges. From my experience, and I’ve seen this used in a number of different companies, this leads to increased team cohesiveness, and also helps teams start the day with specific focused purpose, and it also helps identify any barriers that may be impacting your team which need to be addressed. Better to identify that right away, than to find out after much time has passed that someone on your team has been wrestling with a particular roadblock for a while. Just keep in mind that you also, then, need to be prepared to aid in resolving the roadblocks if needed. In addition to quick morning huddles, I have also found that a meeting at the end of each week helps identify how departmental priorities are progressing, and to look at priorities for the upcoming week and to discuss how to best tackle those priorities. It keeps the team focused on completing the deliverables for the week, it goes a long way for effective resource planning in week-long periods, and helps keep a regular finger on the pulse of departmental KPI’s.
There are many other considerations for finance teams, but I’ll end it with a note about the importance of team development. As I mentioned earlier, your work doesn’t get done without your team, and so investing in developing your team, and ensuring each person on your team is equipped with what they need to do their job well, and that they are having the opportunity to go above and beyond if they have aspirations to do so, and allowing for educational opportunities should they wish to pursue them, will be so important in building a strong team. It’s a win-win when you have engaged team members who feel valued and appreciated and who have the opportunity to do their work to the best of their ability.
We discussed 6 key areas that are important to focus on when it comes to effective finance operations in your company: deadlines, compliance requirements, reporting needs, departmental scope, systems and processes, and your team. Taking the time to ensure these areas are addressed thoroughly and effectively is critical to your finance operations, which are critical to the overall performance of your business. There’s a lot here, I know, and we’ve only scratched the surface, as each of these 6 areas has very specific sub-areas that we can dive into. I’ll spare you for now, but the take-home here is that you can take a methodical approach to working through each of these areas, or get the help of a professional guide who can work with you and/or your finance department to address each of these areas. It may take some investment at the front end, but then it’s a matter of maintaining the beautiful machine that has been engineered, that of your accounting and finance department, which will be one of the key drivers of the ongoing success and growth of your business.
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