With the evolving business market and a dynamically changing financial realm, companies need a strategic finance department to help them navigate the challenges to come. This new finance function expands upon the standard analysis and planning, by making informed decisions around accounting, budgeting, and forecasting.
Growth, cost cutting, and asset optimisation are just a few of the skills needed by modern finance teams if they are to help their business hit long-term goals. They must use integrated, cutting-edge technology that offers real time data, which can then be mined for tactical purposes.
What is strategic finance and how can you inspire it?
Strategic finance is not about focusing on traditional accounting tasks but rather on higher-value activities such as:
- Accelerating business decision-making
- Unifying data from all business areas
- Finding forward-looking insights
- Using connected platforms as intelligent building blocks for financial models
- Packaging financial data in a way that the entire business can understand
Companies can utilise strategic finance to successfully plan, assess, and modify their course, using business intelligence from integrated systems throughout the organisation. They can accomplish long-term objectives, distribute resources appropriately, and subsequently boost company performance.
According to a Gartner report, by 2024 businesses will lower operational expenses by 30%, through integrating widely-adopted hyper-automation technology with newly formed operational processes. This trend shows that companies are rapidly moving towards strategic finance.
However, transitioning to strategic finance requires leadership to alter the organisational culture so that finance teams are no longer seen as a cost centre, and are instead utilised as a strategic development partner. The CFO and the finance team can then contribute more to business objectives.
Aligning strategic finance function to business strategy
Typically, conventional financial operations revolve around three statements: revenue, cash flow, and balance sheets. However, these statements alone are not sufficient to support strategic decision-making. While these metrics provide a quick glimpse into the company's financial health, they don’t necessarily show the bigger picture.
For a successful strategic finance function, businesses need a forward-looking mindset that promotes continuous improvement, strong leadership that can take the initiative, and advanced tools that enable real time and automated financial management.
Financial strategy plays an integral role in planning. It typically involves goal setting, forecasting, and budgeting, which should all align with the intended direction. Here are a few suggestions for businesses to consider when aligning the finance function with wider business goals:
Balance vision and objectives
A strategic plan is only as viable as a company’s financial power. Finance can help to transform an unrealistic ambition into a more realistic target, thus having a positive influence on the overall direction. These goals may be business-wide or function-specific. And the plan could have objectives for acquiring new clients or diversifying sources of revenue.
Budgeting assists managers with the distribution of resources in line with several aims. It supports flexible forecasting and the tactical implementation of strategic financial plans. Therefore, when planning ahead, smart budgeting must be a key component.
Finance teams must utilise data to identify risk and safeguard the company's interests, whether it be a client not paying, a drop in market pricing, or dangerous loan conditions. Thus, they must devise a financial strategy carefully, keeping all the associated risks in mind.
How to improve your finance team’s strategic thinking
The pandemic made it evident that even high-performing organisations should be better equipped to adapt their business models in order to empower their finance teams and aid how they adapt to financial trends.
The following tactics can help refocus the finance team so it becomes a strategic partner and adds even more value to the company:
Framework and process alignment
Leadership should ensure that finance team goals align well with the overall business strategy and are concentrated on reaching major financial milestones. Since finance teams often communicate, a process should be created to examine how teams may increase efficiency, remove obstacles, and enhance collaboration.
Performance alignment with goals
Businesses should set up Key Performance Indicators (KPIs) for each team to demonstrate progress toward specific targets using quantifiable measures. Using strategic finance models, managers may combine key performance metrics with overarching management goals.
Organisations must implement the latest digital and automation technologies to make decision-making and process operability easier. Introducing a Cloud-based analytical solution will allow other departments to collaborate with the finance team. With the Cloud, teams can access all the data in real time, and each team can conduct its own analysis and make informed decisions to achieve goals that complement one another.
Focus on data quality
According to Gartner, "organisations believe poor data quality to be responsible for an average of $15 million per year in losses”, which makes a strong case for data-quality improvement. The right data helps with reducing errors and taking swift actions.
The finance function sits at a unique intersection within the company. Finance managers must collaborate with other departments to influence their goals and develop bottom-up budgets since they have a clear perspective of each department.
Marketing, sales, payroll, income, and costs are just a few examples of finance aggregating data into one source that all stakeholders can access and understand. Strategic finance combines operational (such as customer acquisition, sales pipeline, etc.) and financial data to involve every department in the financial process (gross margin, runway, etc.).
Show the value of finance
As the finance team transforms and fulfils its new mission, share the benefits, successes, and achievements with your organisation. This may foster collaboration between other departments and garner support for future initiatives. Over time, you will have built an innovative finance function that will demonstrate and prove its value to the business.
How to use technology to build a strategic finance function
Many finance teams are still stuck with repetitive tasks despite the excellent work they have done to promote themselves as a strategic department. These companies are perhaps falling short when it comes to transforming the Accounts Payable (AP) role into a tactical one. And it is perhaps these manual procedures that denies them the bandwidth to implement a helpful technology. As a result, their separate functions continue to operate in silos.
Without utilising the wealth of insights these systems generate, companies only tend to view their financial performance once a month / quarter. Consequently, their analysis will likely not meet what is required to thrive in the current business climate.
Many businesses fail to make the most of SaaS (Software-as-a-service) tools for day-to-day operations such as ERP, CRM, HRMS, and Payroll. Such tools can generate actionable data that forms the basis of all financial modelling and forecasting.
Routine tasks can be automated to avoid the woes of manual date-entry and human error. In addition to improving the speed, quality and efficiency of business processes, automation can reduce the workload of finance teams considerably.
Deploying Data Analytics and Business Intelligence (BI) tools, as well as Cloud-based technologies (such as Advanced Data Analytics), Artificial Intelligence (AI), and Machine Learning (ML) can modernise finance operations. In addition, Business Intelligence tools offer visualisation and help with forecasting.
It might not always be feasible to hire experts to transform the finance department. High-growth businesses can consider outsourcing as an option to avoid the expenses of hiring and maintaining an in-house strategic finance team or keeping up with the latest technological infrastructure.
Time for action
With performance expectations evolving (as highlighted in our Business Trends Report), finance departments are now expected to be strategic partners, collaborators, and value creators for the company rather than focusing primarily on transactional responsibilities. Additionally, because of their special position at the company's core, finance teams can connect information throughout the organisation.
As they negotiated the Covid-19 recovery, CFOs were the ones playing a crucial role in digital transformation. But they face new challenges, including a technological skills deficit and internal opposition to change. Adapting to technological advancements is essential for boosting productivity, guiding decision-making, and assisting the company's growth strategy.
Finance teams have never had a better opportunity to move beyond the number-crunching realm and become more strategic, thanks to the increased attention on finance and the ongoing momentum of FinTech. It's time for finance functions to start looking for solutions that enable them to become profit centres rather than just cost centres.
Learn more about our Cloud-based accounting software, Advanced Financials, and how we can assist in making your finance team a strategic function.