I had the opportunity recently to review a report from Bloomberg Businessweek “Finance as Analytical Partner to the Business”. This was a very interesting report that had some key points that can be applied directly to the Owner-Manager Private Enterprise level organization. The report was based on a survey of 318 global business leaders and executives on drivers of operational performance and ways that decision support can be strengthened. Of the executives surveyed, most expected to be dealing with low-growth patterns for their businesses for all of 2013. In order to deal with the operations in this type of environment and make informed decisions, the majority indicated that they were relying on financial forecasting to help them deal with the challenging environment to make the correct decision. In addition, they cited the need for more “real-time” information as being critical to know where the operations were going in order to take corrective action. Low-growth environments also require additional focus on the management of budgets to ensure management of cashflow. As a result, timely and relevant data is essential.
Collecting the data is just the first step. The next step is the analytic part. The data is telling a story, but it needs to be analyzed to see what trends can be identified and how that is impacting the business. The finance team is great at manipulating the data, extracting the trends and doing the calculations, but to get the full story the finance team needs to engage other areas of the business (sales, HR, etc.) to fully understand the trends and the impact to the business. This team approach will help guide the key information needed to run the business effectively and efficiently, and key line managers can use the operating performance indicators to guide them on the operations of their unites. The report recommends a financial dashboard that managers can access to provide them with feedback on operations and their key ratios and trends.
How does this apply to the owner-manager enterprise that doesn’t have a large number of resources or an experienced finance team? The answer is that it is better to do some of this type of analysis versus nothing at all since it will help make the decision making more concrete. Many businesses look at the finance department as a cost center and a necessary evil, but that is not the case. If used effectively, the finance department can add a wealth of value to your organization and help improve profitability by enhancing controls, improving data for decision making, providing trending data and key performance indicators, and forecasting. Here are some thoughts on what to do:
- Develop better systems to collect data (sales, expenses, etc.) to speed up daily accounting processes. The faster the information gets into the system, the faster reports can be updated and utilized to your advantage. On the expense side, don’t wait until the invoice is received since accruals can be booked ahead of the invoice receipt.
- Publish data on a regular basis to the user groups. This may not be a full financial statement package but could include department or divisional income statements, actual to budget expense analysis or cash forecasting to name a few.
- Develop key performance indicators for the business as a whole and for the key operational areas and develop a system to publish this data to the key managers.
- Stress the importance of using the data by the managers and reviewing it in regular management meetings to maximize its usefulness and integrate into the regular process of the company.
The advantage of this approach is that you will be making decisions on real data and the developing trends. As a result, your decisions and strategic tactics for the company will become less reactive and more proactive and provide for better overall management of your company.
If you are interested in reading the report in detail, please click here.