8 Characteristics of Best-in-Class Finance Functions

Matthew Dziak

Mid-size and early-stage growth companies face many business challenges they must overcome to sustain themselves. Some of the top challenges and problems growth businesses face are outgrowing their tools, the need for additional headcount, covering new, highly competitive territories and more reporting demands from investors. The same issues can persist at larger enterprise, where resources are restricted at times and decisions are slow to materialize.

To keep up the finance function must remain agile in forecasting, scenario planning and overall strategies to gain more market share. Developing a mature finance function that operates as a top enterprise is a transformation process that doesn’t have to be prolonged or painful. You must be brutally honest in evaluating your finance operation, identify your deficiencies and act sooner rather than later because expectations are elevated, and the stakes are much higher. 

VC funding, PE firm acquisitions and additional investors add pressure on the entire company to perform and for the finance function to deliver accurate and timely financial management reports and metrics in a specific structure and regular cadence. In this post, we break down eight challenges facing finance in SMEs and growth businesses and what best-in-class finance functions do to avoid pitfalls along the way.

What is the Role of a Finance Function?

Finance functions are responsible for measuring and recording company performance; analyzing past results, while forecasting opportunities and measuring risks; providing actionable insight to inform and drive business outcomes. The objective of finance is not just to track company progress, but enhance it. 

To do this, finance needs a framework to work within and solutions that are scalable. Accounting needs to focus on closing the books quickly and accurately, while financial planning and analysis (FP&A) must examine variances and model scenarios and forecasts based on specific inputs and assumptions. The more efficient and reliable you are at producing your metrics and analysis, the more insight they provide business partners and management to facilitate strategic decision-making.

Best-in-Class Finance Functions and Business Growth

1. Rapid Accounting Cycle and Book-Closing Process

When it takes accounting weeks to close the books, the process is merely a box to check for the team. Management and investors expect monthly financial reports that summarize and give a snapshot into the health of the business. Unfortunately, if your book-closing process is lengthy, it handcuffs planning and offers little insight due to the timeliness or lack thereof. 

When finance seeks to analyze the metrics, variances and forecast scenarios, the numbers are already outdated. There are a few methods to speed up the closing process for accounting. First, comprise a checklist of all of the tasks and steps needed to close the books and assign a reviewer to sign off on each task. Invoicing and accounts payable can be automated with a variety of tools with ranging capabilities to fit your needs and budget, while freeing up capacity for the manual reconciliation tasks. 

2. Business Units Operate From the Same Metrics

You can’t close the books without reconciliation, and you can’t plan accordingly, if a business unit is not on the same page as finance. The last thing you want is each of your systems telling a different story from the data in your general ledger. Devising Finance KPIs and metrics, and consistently recording and forecasting them is a necessity for any high-impact finance function.

You need a single source of truth, a scoreboard if you will, that the entire company works from. The sales team shouldn’t be working off of numbers that aren’t reconciled with those finance reports on. This leads to wasted time spent by finance and management trying to determine which set of metrics are the source of truth, instead of making informed decisions to drive growth.

What finance must do after raising a round of funding

3. Budgets Aren't a Headache to Create and Abide By

The annual budget season is dreaded by many finance functions, so much so that they do away with the process completely.  For some, budget planning consumes the entire fourth quarter, laced with a game of chasing down budget owners and making numerous iterations to the plan. Unfortunately, all of finance’s effort goes to waste as the budget is abandoned by the middle of the first quarter of the ensuing year. This is a classic case study of what not to do.

The best finance functions, ones that deliver the greatest value in the most efficient way, develop a repeatable process with the help of an FP&A Platform where budget owners can input and manage their specific metrics, while finance maintains version control at all times. The time-consuming and frustrating back-and-forth is eliminated and all of finance’s efforts are preserved without revisions causing errors.  

4. Robust Forecasting Function

The accounting function records what has occurred up to point zero, and FP&A, which is forward-looking, uses those numbers to produce forecasts. Forecasts provide a view of potential outcomes based on the decisions made by management. They are also necessary to track progress against the targets set in the annual budget. When you have trouble forecasting or don’t forecast regularly, you lose out on the opportunity to game plan accordingly and prepare for outcomes. 

For example, if your sales revenue forecast calls for a 30 percent increase in new annual revenue, but by mid-year, the actual is only 10 percent, you are pacing severely under trend. There’s a good chance your management team has zeroed in on your VP of Sales wondering why the sales numbers are below forecast. 

There might be an explanation for why the numbers are down. It might be because two salespeople quit in the second quarter and there was a decision to cut expenses and not backfill them. Or maybe there was a reduction in marketing spend, and thus, there are fewer qualified leads than expected.

If you forecast at a detailed level, you can project the potential additional value of adding two salespeople who will hit their quota within their first 60 days or identify advertising opportunities that worked in the past to produce more leads. These data-driven course-correction efforts can lead to a stellar second half of the year where your company still hits your revenue growth target. But they wouldn’t be possible without a proper forecasting process. 

Corporate Finance Strategy and FP&A drive strategic conversations that lead to action

5. Plan For Multiple Scenarios

After the pandemic and other unforeseen extraneous circumstances, scenario planning is more needed than ever before. Companies who have no insight into the potential impact of their decisions are the most vulnerable to lose out to the competition. 

Your company's income statement is a great starting point for holistic scenario planning. For example, as inflation and labor costs mount, how would net income and revenue be impacted by adding two experienced salespeople, who take six months to ramp and only two will hit quota regularly? What if you were to add three junior-level sales people instead, who take twice as long to ramp but compensation is 20 percent less for each?

These are the questions management, and sales executives are desperate to answer, and turn to finance to explain. Scenario planning can have a domino effect, where one input change spurs a new idea to forecast and plan for. Taking the initiative in scenario planning and approaching it with a business mindset will set you up for best-in-class status.

6. Collaboration is Embraced

Every department seems to have its own analyst and none of them talk to each other or to finance. Does that sound familiar? For FP&A, partnering with business units and budget owners is necessary to gain an understanding of their needs and also their expertise. 

Without efficient and thorough collaboration, you are left chasing down inputs from decision-makers, without control over the metrics, and never developing a real relationship with the internal business unit partner. If you don't know what makes them tick, your analysis will lack credibility and your recommendations could go unwarranted.

As a business unit partner, you won’t have all of the strategic insight without having a greater working knowledge of how a specific business unit operates. Finance must commit to examining the inner workings of a given department, while leaning on budget owners’ specific expertise to give context to the results and help determine the best path forward to hit the targets. 
Finance information architecture nightmare
If it looks like this, a better way exists

7. Focus Efforts on High-Value Tasks

Although near the bottom of this list, best-in-class finance functions focus their efforts on the most value-added tasks, like forecasting scenarios and strategic analysis, while automating remedial data processing.  There comes a point in time that every company hits a stage where the manual efforts of the past are holding them back. It can feel like a constant game of just trying to stay afloat as a finance function, as the organization continues to grow and evolve. 

Since Excel is a familiar and flexible tool for accounting and finance, it becomes a go-to for growth companies to manage all of their company performance data and metrics. The entire workflow requires hours of manual effort, but management is satisfied because the reports are delivered as needed — for now at least. The problem is exacerbated when you need to extract data from multiple systems and stitch it all together for your reporting and analysis. 

Leveraging FP&A tools automates tedious manual tasks and eliminates costly errors that are easy to make. Extracting data from disparate systems, structuring and formatting the data, preparing financial reports and presentations for our Board consumes a huge amount of energy every month and quarter. We keep revising past months because of errors identified after the close.

8. Rely on Battle-tested Finance Expertise

No successful finance professional can do it all on their own. Progressing from an accountant or analyst to a senior finance executive, or CFO role comes with many mistakes and lessons learned. These experiences will only make you a better, more impactful finance professional, but there is a path to skip ahead. 

Having experts on your side who have blazed the trail and willingly available to guide you on your finance transformation journey will allow you to remain agile and implement high-value processes much quicker, without the trials and tribulations. FutureView Systems’ is founded by finance professionals, with CFO, Controller and Head of FP&A experience, to guide you through any of your finance transformation needs and quickly build a best-in-class finance function. 

FP&A Software with tools and methodologies from finance experts