Thanks to digital tools, many businesses have been growing rapidly, building efficient processes, making data-driven decisions, and increasing their profitability. While business workflows are becoming more streamlined, finance is one of the functions going through the most significant changes, and therefore finance teams will need to adapt.
The most effective finance teams now focus on forward-looking analysis to generate strategic insights and opportunities, achieving the perfect balance between cost-cutting, risk management, and agility.
Forward-facing finance is a new approach that leverages real time financial data analysis and business intelligence, so that CFOs can make better decisions and support their company's growth. For finance leaders looking to modernise and solve their department’s biggest challenges, this new way of looking at finance can play a crucial role.
What does forward-facing finance look like?
Backward-looking finance is a traditional approach that focuses primarily on reporting and analysing data from the past. Evidently, with this approach, financial management is conducted in a reactive manner rather than a proactive one.
Instead of generating strategic value for the business, this method is more concerned with ensuring regulations are followed and risks are controlled. By focusing primarily on past data, finance teams may miss opportunities for cost savings, process improvements, and growth.
In contrast, a forward-facing finance function focuses on collecting up-to-date financial insights and leveraging data analysis to support strategic financial decisions. Instead of always looking into the past, this method of continuous accounting ensures the team is prepared to deal with problems before they have already happened.
It also assists with adding value to the company through innovation, customer focus, and collaboration with other organisational departments.
Why is it important for CFOs?
With a forward-facing finance function CFOs can always be one step ahead, enabling their organisation to be agile in an ever-changing business landscape. Here are some of the benefits they can gain from embracing this strategy:
Anticipate future challenges/opportunities
A forward-looking finance function will ensure the CFO can analyse both past performance and future projections, so they can be more certain of what is round the corner. With access to these insights, CFOs are better positioned to implement strategies that keep them up with competitors as well as industry trends.
Identify possible risks/uncertainties
CFOs are better equipped to navigate their organisation through the murky waters of the future, as this unknown becomes more known. This can include changing regulations, competitive pressures, or unprecedented events in the market/industry.
Forecast critical metrics
This new financial management approach enables CFOs to conduct better financial forecasting around critical metrics such as revenue, expenses, cash flow, and profit margins. The projections around these KPIs will help them make informed decisions about budgeting, investments, and other financial decisions that could impact the company’s financial health.
Proactive approach to financial management
Instead of reacting to events as they happen, CFOs can be prepared for the most likely outcome at any given time by leveraging scenario planning tools. This proactiveness further helps the business to pivot quickly in response to shifting market dynamics and customer needs.
How CFOs can build a forward-facing finance function
The finance team is essentially tasked with tracking how well the business is doing, by analysing historical data, forecasting opportunities, evaluating risks, and providing actionable insights.
But there is also a burden on the finance function to accelerate organisational growth rather than just monitoring performance. Therefore, there must be a framework and scalable solutions to accomplish this goal.
The more effectively finance metrics are analysed, the more insights they can provide to business partners and other key stakeholders to support strategic decision-making. As such, CFOs looking to build a forward-facing finance function must be tech-savvy and strategic.
Forecasting, cash flow management, data analysis, accounting fundamentals, risk management, and compliance are some of the skills CEOs expect from their CFO today. Here are some of the other skills they should develop in their team if they are to thrive now and over the coming years:
A forward-facing finance department is adaptable and responsive to the changing needs of the business. It can rapidly adapt to new technologies, practices, and business models to continue being ever-more valuable to the organisation.
Such a finance team will rely on data-driven decision-making, employing advanced analytics and reporting tools to obtain real time financial data and insights. They’ll dive deep into these insights to uncover the company’s strengths and weaknesses.
They’ll also work closely with other departments to implement holistic financial strategies. By collaborating with the sales and marketing team they can develop pricing strategies, and with the operations team they can find ways to cut costs and streamline processes. The new finance function will have a shared understanding of the wider business goals and objectives.
A forward-looking finance function will prioritise the needs and expectations of customers in all financial decisions. For example, they could utilise new digital platforms to facilitate speedier customer outcomes or change prices/service packages to better meet their needs.
They should constantly be on the lookout for new innovations and best practices to improve efficiency/value. This could involve utilising cutting-edge technologies such as blockchain and AI to accelerate financial operations and make better decisions.
The modern finance team will be strategic, providing analysis and advice to help the organisation move in the right direction. Examples could include making long-term financial plans, looking for ways to expand, and assisting with mergers/acquisitions.
New opportunities and challenges for forward-facing CFOs
While this new way of working brings opportunities for CFOs, there are a few challenges these leaders should be aware of too.
- Leveraging new technologies: CFOs get an opportunity to leverage emerging technologies such as Artificial Intelligence, Machine Learning, and data analytics to improve the accuracy of data and projections.
- Automation: With certain digital tools, CFOs can automate mundane financial processes and, in turn, streamline operations and improve efficiency.
- Informed financial strategy: Finance leaders are better positioned to build effective strategies, using real time financial data as a foundation for this strategic decision-making.
- Broader contribution: This modern approach gives CFOs the time and confidence to participate in broader strategic elements, such as technological investments or further expansion opportunities.
- Collaboration: Forward-facing financial management will help CFOs to develop cross-functional collaboration skills, and to work more closely with other business leaders within their organisation to drive business growth in a cohesive manner.
- Data management: Tracking and analysing a large amount of financial data can be challenging for CFOs, especially with the increasing complexity of financial regulations and reporting requirements.
- Talent management: Given the rapid evolution of technology, CFOs may find it challenging to build and retain a team with the required knowledge/skills for a forward-facing finance function.
- Cybersecurity: With financial operations becoming more digital, they must also protect sensitive financial data from cyber threats.
- Complex change management: Putting new digital solutions in place will demand significant organisational change, which will likely attract resistance.
Financial markets are looking forward
Financial markets are known for using terms such as ‘forward-looking mechanisms’ and ‘discounting mechanisms’. Unfortunately, even though many individual investors understand these terms, their actions perhaps don’t reflect this.
These phrases indicate the market is more interested in what will happen in the future rather than what has happened or what is happening right now. Economists often rely on data from the previous three months to determine how the economy is doing.
Similarly, investors depend on past economic events to navigate current investment challenges. However, they often end up making poor decisions without understanding the context of past economic cycles and market behaviours.
In this challenging climate, CFOs can only be successful by embracing innovation and forward-thinking financial management. Our annual Business Trends Report highlighted that 33% of companies see Cloud adoption as a main priority over the next 12 months. This goes to show that there’s a lot of room for more leaders to embrace this technology as a key element of their future gameplan.
Cloud technology has a crucial role to play in facilitating the forward-facing finance function. With the Cloud, finance departments are capable of storing, accessing, and processing vast amounts of data in real time. This allows finance leaders to tap into insights that are more accurate and current.
Advanced Financials is a cloud-based accounting software that enables your finance team to proactively traverse the future business landscape. With automation, powerful reporting, and strategic insights, they can become a truly forward-facing function.