Enable growth by establishing scalable processes in your finance department

The global drive for economic growth is sparking innovation and emergence of new companies globally. But what happens after the initial start-up phase when your business starts growing rapidly? We have identified a pattern within small and medium-sized enterprises (SMEs) where a swift growth journey is impacted by initial growth pains in the finance function.

Research shows that proactively handling these growth pains is essential as the finance function can make or break the growth and necessary support to survive a rapid growth phase. In these growing organizations the financial processes are often set up in the beginning but once the business grows they are rarely prioritized to be revisited and developed. A lack of well-defined steps in key finance processes can cause operational chaos and major setbacks to the business as a whole.

The objective of this article is to provide a perspective and understanding of how you can build scalable processes for your finance function to be able to support your growth journey without becoming the bottleneck.

Understand what causes the problem, not the symptoms

The finance function is the compass of the organization that monitors and controls its financial performance. In order to not remain as a value adding service provider, the finance function needs to step forward from the back office to the front line. If the finance function is kept in a more reactive back-seat role there is a risk that the existing financial processes cannot support making business decisions and the growth journey.

According to a research conducted by Dun & Bradstreet, approximately 90% of small-business failures are caused by poor cash flow management. When the company is growing, so are its costs. The costs tend to step up whereas the revenue is a slope function. While the business owners might see the symptoms to the problems, the importance is to look at the root causes. In other words, business owners and CFOs will need to understand proactively what causes cash flow issues.

A survey done by Vanson Bourne, in which 500 UK finance professionals shared their perspective on their accounts payable process, 56 % of businesses experienced cash flow forecasting problems due to accounts payable issues. By having a finance department with scalable processes, you can transform the role of your finance organization from a firefighter to a fully functioning team which can support growth and proactively address potential issues before they become big problems. A Finance Effectiveness Benchmark Report 2017, conducted by PwC found that; “Top performers operate at lower cost not by reducing service levels but by standardizing and simplifying their core processes and systems – enabling them to free up resources to focus on business partnering”. Many companies are struggling with the finance department being a service provider, instead of truly being a business partner. The finance function mainly provides the basic accounting and reporting services. They do not have time to focus on value creating activities, such as analyzing data and guiding the business in critical decisions.

To free up time and achieve greater internal data visibility, the basic core processes need to be lean and effective. When the finance department spends more time analyzing the data than gathering it, they truly can become a business partner. For a start-up or a growth company, having a business partner in its function can be crucial for success. How so? For instance to strategically look at the accounts payable processes to free up working capital and fuel growth.

The alternative cost of not setting up scalable processes is that the finance function will remain the bottleneck of your organization that empowers slower decision making instead of being a value creating part of the organization. An example could be handling discounts where multiple people have invented their own shortcuts, exceptions and manual tweaks to the process which imposes a risk of inefficiency along the way. While this might work in a small organization, the risk associated to informal processes is lack of transparency as there are plenty of variants which will need to be streamlined.

A similar pattern has been experienced by Centigo where we have identified that rapidly growing organizations have a tendency to neglect their finance function and its processes. When companies start to invest in larger ERP-implementations or automating processes the finance processes are typically taken for granted. Consequences include costly corrections and adaptations for the finance processes to fit, a poorly functioning finance department and interruptions in cash-flow. All which could have been avoided by having the right finance processes in place, prepared to support the implementation instead of hindering it.

But how do you know that the timing is right?

It can be challenging to define the optimal time to scale up the finance function, since the workload generated by the business operations is linked to its market success. On the other hand, starting to scale up the finance function too late can have detrimental effect on the business. 

In Centigo's view, the business owners and/or the CFO should utilize internal performance data along with the impact from historically known pain points to determine when current processes, systems and working models will no longer be able to deliver the required outcomes. This will indicate when the timing is right.

  • Some of the indicators include but are not limited to:

Financial period-end-closing cycles are not completed on time,
Account reconciliations have large unreconciled balances,
Invoices are not paid on time,
AP balances steadily increases month on month, 
Inventory balances are high
Reports are limited to statutory requirements
Majority of time from the finance function is spent on bookkeeping.

How do you do to get the maximum effect out of scaling the processes?

In order to get the processes in your finance department to the target-state there is a need to understand the framework of targeting the key processes. Centigo has developed a connected thinking framework, which allows each element to grow as required over time. Our model has the following steps:

  1. The first step is to understand the scope and requirements. Setting goals by understanding where your organization aims to be in three to five years and what this requires from your finance organization. For example within process upscaling, should the organization target an isolated process or an end to end purchase to pay process? And should it include the possibility of implementing Robotic Process Automation (RPA) or basic automation through an ERP?
  2. Once the scope and requirements are agreed upon, the next step is to explore the current state. What is the maturity of today's finance function and where are the gaps, challenges and improvement opportunities? At this stage it is essential to ensure that the right people are involved, both in understanding the current state and the hypothesis of the future state. This also includes evaluating options that best deliver value to the current and future organization.  
  3. Based on the organizations evaluation and selection, the future stage can be designed and developed. At this stage it is also important to define a change plan, to ensure that the finance organization is ready for the change, as well as the overall organization since the change often involves more than the finance organization.
  4. The next step is to deliver the agreed design and thoroughly test scenarios to ensure the quality of the implementation. Any changes to the design should be recorded, agreed and refined to ensure that the agreed outcome is still being delivered.
  5. The stakeholder team should ensure that the benefits realization is tracked from the outset and continues to deliver throughout the change. Embedded initiatives, which emerge during the process, should be managed to get the most out of the new processes.
  6. Upscaling should continue in a dynamic manner and therefore organizations should consider how they will further improve on an ongoing basis in an incremental way. For example, once processes are standardized and simplified - are they ready to apply LEAN methodologies?

How can Centigo help with the growth journey that you’re facing?

The Centigo way of thinking has already delivered projects across a range of businesses within various industries. 
Below are some examples related to cost and efficiency improvements through working capital initiatives: 

• Helped a global company (revenue 120 BSEK) identify quick wins saving 40 MSEK and game changer activities savings of 1,2 BSEK on an annual basis by analyzing the accounts receivable process.
• Helped a global company (revenue 30 BSEK) reducing DPO (days payable outstanding) with 5,2 days and identified 357 over-billed purchase orders.

We would gladly share our case studies along with various implementation scenarios.

Contact us!

Contact Sandra Backlund

Contact Daniela Lukkarinen

*Study of 500 accounts payable (AP) and finance professionals in the UK across all business sizes and sectors in collaboration with independent research specialist, Vanson Bourne, August 2015.