How to effectively run the modern finance department

The finance department is at the very heart of every business – paying salaries, bringing in payments from clients, handling invoices from suppliers, settling bills for rent and utilities, and providing money for investment.

However, as any CFO will tell you when asked “what does the finance department do?”, the answer is that it’s increasingly likely to be taking a more strategic role in the business, driving it forward and helping the CEO and others to make essential decisions.

Read this article to understand how your role as a CFO is changing, what the finance team needs to do to be effective, and how to embrace digital transformation, data and analytics.

Changing role of the CFO

As a CFO, your role is no longer consigned to pulling together financial reports to share with the board and the wider team. Playing a more strategic role is key, as is working closely with the CEO on the direction of the business.

“The biggest change is that the strategic direction of a business is increasingly being led by finance, and this has seen a greater partnership approach between the managing director and finance director,” says Sophie Williams, the finance director for Corbetts the Galvanizers, one of the UK’s longest established hot dip galvanizers.

“Commercial input and thinking are required earlier on in the decision-making process, helping to drive change and increase revenue in the process… we’re not just there to save the pennies – although that is still important.”

The Telford-based company is embarking on ambitious growth plans to boost its £11.4m annual sales by 15%, with the potential of creating 30 new jobs in 2019.

Williams adds: “The CFO is no longer ‘segregated’ from the rest of the business focusing on historic figures. It is a far more dynamic and forward-thinking role than it has possibly ever been.”

What the modern finance department does

According to recent research by Accenture, more than three quarters of CFOs (77%) believe it is within their purview to drive business-wide operational transformation, while more than eight in 10 (81%) see identifying and targeting areas of new value across the business as one of their main responsibilities.

Underpinning this is the bookkeeper, who plays a key role. They are traditionally responsible for all of the day-to-day transactional accounting for the business, such as raising and chasing invoices, paying bills and ensuring spreadsheets reconcile with bank statements.

This involves managing cash flow and ensuring there are enough funds available to meet the regular payments.

“Cash management is totally the key,” says David Hildrew of Bluebeards Revenge, which produces barber-grade shaving, beard grooming, skincare and hair-styling products.

“For whatever reason, fiscal belts are well and truly tightened right now, so ensuring we get paid in a timely manner is more crucial than ever. So you need a strong focus on debt control while maintaining the credibility of your business with your own supply chain.”

Increasingly, digitisation means a rapid automation of these procedures. New technology can track invoices, identify when they’ve been paid and automatically chase clients and others where they haven’t.

Alongside these activities, the finance team and you as a CFO, in particular, are also usually responsible for advising and sourcing longer-term financing. Depending on the business, its size and its goals, this financing might be obtained through a bank or via private lender debt.

In other cases, you and the finance team will have to advise the board to look at raising finance through shares issued to private investors.

Increasingly, as you take a more strategic and less of a purely executive role, you might find yourself making recommendations to your company on the need to look for angel investors or venture capitalists.

In this case, the finance team will play an essential role in preparing the documentation required for presentations to these potential investors. Members of the team might also work on a company valuation along with an external adviser such as a merchant bank.

Data and analytics for the finance team

All staff in a finance function are increasingly having to learn more about technology such as analytics, as the manual processes that they would once have performed are now subject to digital transformation.

Big data and other technology produces figures and statistics but these days, the challenge for the finance team is to transform that data into usable information. This, of course, requires formal training and professional education.

Rather than simply adding up figures and producing spreadsheets for the board, the team will have to understand the implications for the business as a whole of the figures that it generates. Learning how to analyse and present key findings is essential.

Other business leaders will be expecting insights, advice and guidance – expect questions such as “What do these figures mean?” and “What actions should the board be considering, based on the numbers produced by the finance team?”

Data and analytics play an important role for you and the finance team in a range of other areas, such as these highlighted below:

Technology, regulation and automation

As with almost every other aspect of business, technology is clearly playing a key role in the finance team. As well as allowing staff to make more informed decisions here due to the increase in data delivered by big data systems and better analytics, technology now affects regulation.

Making Tax Digital, the UK government’s new online tax and accounting initiative, has given technology in the accounting space a significant boost.

Rather than having to post spreadsheets and other information through manual processes, Making Tax Digital and cloud processes mean the finance team can share information instantly with more people than ever before.

Meanwhile, regtech is a branch of fintech and is essentially technology that provides “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions, according to management consultants Deloitte.

It might be used, for instance, to meet anti-money laundering regulations more efficiently and effectively. Rather than requiring humans to analyse transactions and look for those that might be suspicious, automation can take over, flagging them and allowing people to make the more subtle, nuanced judgements.

Cloud computing

As fewer of us spend all of our working lives in an office, choosing instead to operate from home, a coffee shop or an airport lounge, collaborative working is becoming easier due to technology, much of which is now cloud based.

By using cloud software, you can be out and about and still share information and get feedback on it from colleagues within the finance team and from the wider business.

This means you can analyse real-time data and analytics to make decisions that the team can act upon without waiting for you to return to the office. By saving time in this way, the department will be able to work efficiently and effectively, which will reflect well on the business as a whole.

Financial planning and forecasting

Data and analytics are two elements of digital transformation that are particularly important for financial planning and forecasting. As the role of the finance team evolves, your business will require you to look forwards rather than backwards.

In other words, instead of simply doing the annual accounts, the finance team will be expected to make predictions and forecasts.

This might be about potential areas of expansion for the company or the risk of raw materials rising in price. It could be increased duties and taxation or the impact of higher rents and rates, or even growing competition within the market.

In order to do this, you will need to use data and analytics. In times of economic and political uncertainty, these tools are increasingly important.

Greater competition within many sectors and the need to go to market faster means you will need to help your fellow business leaders gain deeper insights into the company’s financial status and tangible assets.

Information about issues such as cash flow, foreign currency exposure and unanticipated expenditure also need to be more accurate and must be available more quickly than ever before.

Identify profitable clients…

It’s often said that the profitability of customers typically complies with the 80/20 rule – 20% accounts for 80% of the profits and 20% of the clients account for 80% of customer-related expenses.

Analytics and big data enable the finance team to identify those clients that are more profitable and which ones are wasting the company’s time and money.

… and products and services

The same is true of products and services. Product profitability analytics can help those working in the finance function to calculate the profitability of each product rather than simply analysing the business as a whole.

Your business might have a flagship product that is popular with customers but if it’s not delivering sufficient profits, the senior management team will need to rethink it.

Shareholder value

Looking at external data and analytics is important in order to identify shareholder value. Analytics here can be used to calculate the value of the company by looking at the returns that it’s offering to its shareholders.

The finance team can use this important element of digital transformation to measure the impact of the business strategy and how much value that strategy is really delivering to the shareholders.

Shareholder value analytics are usually used concurrently with profit and revenue analytics.

Three tasks for the finance team

Below are three things that you and the finance team will need to deal with to keep up with the way that business requirements are changing:

1. Deal with risk management

In these times of political and economic uncertainty, where regulators are more likely to take action, supply chains are longer and more complex, and consumers are better informed and more vocal, you have to be more aware than ever of risk.

You also have to be ready to mitigate that risk so the company remains on an even financial keel.

According to recent research by management consultants McKinsey, nearly two-thirds (64%) of CFOs surveyed said the risk management function reported to them. Just over half (55%) said the same of regulatory compliance – another area of risk.

The good news is that digitisation, analytics and big data can help you here. More data is available and more sophisticated analytics can be used to make faster and more accurate predictions, and can develop and test a variety of economic scenarios more quickly and easily.

As a result of digitisation, your role and that of the finance team is changing – in particular, because the rapid expansion of cloud technology, big data and digital currencies have brought about the automation of many of the traditional functions of the CFO.

2. Get up to speed with digital transformation

Instead of crunching the numbers and studying balance sheets, digital transformation means the finance team can work faster and smarter.

This also means that you, as a modern CFO, have to be more analytical and able to leverage the increased amount of information that big data and similar analytics provide to make faster, accurate and more strategic decisions.

Technological competence and understanding digital transformation are key for anyone running a finance function and updating your learning in these areas by reading, attending courses and ensuring the team is using the latest digital tools is essential.

According to Chartered Global Management Accountant, the global designation for management accountants, you should primarily be guided by four key roles, all of which are focused on value:

• Creator (strategic value creation)
• Enabler (supporting stakeholders in making decisions and understanding performance)
• Preserver (assets and liabilities management, risk management and internal controls)
• Reporter (internal and external value reporting).

3. Undertake ongoing financial management training

Ongoing financial management training is available through professional bodies such as the ICAEW professional membership organisation, which promotes, develops and supports more than 180,000 chartered accountants and students worldwide.

With the rapid growth of automation and digitisation, it’s also essential that you develop general management skills.

The need to be able to take a longer-term strategic view as well as learning how to manage teams and master soft skills means a growing number of CFOs and senior members of the finance department are now studying for MBAs and more general business qualifications.

A formal accounting qualification is essential in a sector governed by processes and protocols.

Organisations such as the Association of Accounting Technicians offer a range of training for both those thinking of a career in finance and for those already working in finance, which could be useful for you and the finance team.

Skills such as problem solving are also valued as is an ability with and understanding of analytics. Your organisation will need you to be able to analyse a situation, take into account a variety of different factors and identify the actions that needs to be taken.

Also, over recent years, the UK government has been keen to promote apprenticeships and for those working in finance who would rather “earn as you learn” than take time off to study full time, the London Institute of Banking & Finance is one of a number of institutions that offers apprenticeships in finance.

Additional takeaways to run the finance department effectively

With greater demands than ever being made on the finance team and increased opportunities for it and you to make a more significant contribution to your organisation as a whole, below are two more things to think about in order to help you oversee the section effectively.

Move away from manual processes

It’s vital for the success of the company that the finance team has the latest skills relating to technology such as digital transformation.

Those on the team need to move away from manual processes and allow automation to take over while they use resources such as big data and analytics to make more intelligent, insightful and informed decisions. Ongoing training will help this happen.

As technology and thinking around finance moves faster, everyone from you as the CFO downwards need to think of training and education as a state of mind rather than a box to be ticked every now and then.

Improve communication and collaboration

As they move away from manual processes such as number crunching and populating spreadsheets, those working in the finance team also need to develop better management and interpersonal skills.

Digital transformation means finance staff will find themselves dealing with people more than numbers.

They’ll need to learn how to talk to colleagues and understand how to explain accounting practices and financials to non-technical audiences. Therefore, presentation skills will become more valuable. The team will have to learn how to persuade, engage and manage conflict effectively.

Conclusion on the changing nature of the finance department

As a CFO looking to run the finance team effectively, you need to ensure your team is aware of its changing role. Crunching the numbers still has a place – remember, automation can help with this – but so does the role of analysing and interpreting data to make key business decisions.

The finance team is there to evolve the position of the business and as the CFO, it’s your role to make sure you look beyond the traditional boundaries of the finance function and make the sort of impact that drives the company forward.

By combining analytics, digitisation and the right blend of personal skills, you and the team will be able to make that a reality.