A modern finance function should be more than a scorekeeper: we read that everywhere. Well, it's true, and it's true at small companies as well. Transforming finance at a Small to Medium sized Enterprise (SME) has specific challenges. The Finance team is smaller, the IT infrastructure is less sophisticated and the management team may not be driving Finance to do more. If management does want more from Finance, they are often unable to express a coherent view of what they want. Culture challenges such as a reluctance to share information come into play, and there may be strong resistance to change.
Compared to the exciting blue chip transformations profiled in professional magazines, the "transform finance" approach for an SME should be slimmed down, no-nonsense and deliver quick results. This is possible. The results are a more motivated team, a much stronger influence in the business, and the satisfaction of achieving tremendous results.
Note: Tim Richardson has launched a consultancy GrowthPath, which implements SME Finance Transformations for Australian SMEs.
By transforming finance, I mean moving away from a score-keeping role. Think of the scorekeeper at a football match. They are hidden off in a room somewhere, carefully observing the game and the signals from the umpires. Of course, accounting rules make score-keeping quite complex; it's not an easy job, and the judgements made on sales recognition, for example, certainly influence bonuses and bank covenants. But score-keeping doesn't change the game in progress. Should a small finance team have ambitions to contribute more to the business than merely careful observation? I think so: finance strengths can easily add more. Finance can move to forecasting, answering questions about the financial consequences of decisions, and applying rigorous, analytical techniques to operations. Another key area is IT: small business can now afford IT tools that produce incredible amounts of data: consider Google analytics, a free but very powerful website analysis suite. When the business wants to make statistical inferences from this data, and link it to financial performance, who are you going to call? Hopefully, Finance.
I believe even a small Finance team should aim for the following:
- look to the future (forecasting, decision support), not the past (historical reporting)
- advise the business in earning rewards through investing in risk (that's what a business does)
- know what areas of the business should be managed for risk minimisation and efficiency (parts of the business which are not core value
Transforming the finance team means a lot of changes. Part 4 of the series will go into more detail, but one thing that is important is sharing a simple vision of where you want to do. Here's what I shared soon after starting in my current role:
I simplified the modern view of the finance function to four pillars.
The quadrants represent
- Business control
Safeguarding assets, reporting, forecasting, compliance
- Decision support
Helping managment understand the key decisions (ranking the important decisions that need making is often overlooked).
Finding the key drivers of a decision and how they affect business results and risk
Modelling and scenarios
- Optimising and increasing cash flow
Improving returns for shareholders
- Efficiency (the graphic represents the fastest route between two points)
Finance needs to take the lead in being innovative and lean.
Finance needs to be as fast as possible, so provide relevant and timely information, not stale data.
I also put specific objectives under each topic. For example, I made a target about closing the month in three days under part 4 (which we achieved, down from two weeks when I started)
About the author
Tim Richardson is an experienced finance professional who differentiates himself by his versatility, his IT and system skills, and his people skills.He has an enormous range of leadership experience gained in the FMCG sector, online B2C, manufacturing and international supply chains, and he has worked in emerging Asia, mature Western Europe and transforming Central and Eastern Europe. His qualifications span the communication strengths of an Arts degree, the analytical skills of a Computer Science major and the professional skills of a Masters degree in Finance. His has built teams of all kinds of talent mix and lead them through change, and has a strong record in recruiting and developing people. His practical IT skills and systems background is very strong in maximising the value of information spread throughout the organisation, and his abilty to help experienced management focus on the issues and consequences of decisions enables him to add value very quickly. He is currently enjoying his CFO role with an Australian SME with a major international online presence.