10 benefits of a finance first approach - Heart of the machine or keeping score?

It is fair to say that not everyone looks at their finance department as the fuel in the engine (or volts in the battery). Some purely view the function as an overhead to be minimised. Others are led by finance to the extent that the CEO used to be the CFO. A few need their financials to be front and centre in the business, especially those fuelled by borrowing or PE. So, are finance the heart of the machine or are they keeping score? We look at why a finance first approach makes sense in many businesses.

Finance first mindset

Love it or hate it, some businesses are run by accountants. Like any organisation, some departments have more influence than others depending on the industry or ownership. In fashion, marketing tends to hold sway. For technology, sales tend to have a strong hand. In a few industries, such as telecoms and PE-backed businesses, finance is usually in control. Similarly, there are industries, such as financial services, where finance have a very important role to play in compliance.

So, what does a finance first mindset actually mean? Broadly-speaking, it means that the majority of decision-making and expenditure is run by finance for approval before anything happens. Yes, it means that operations, marketing, IT, commercial and other teams need to gain approval regularly from finance. In turn, the finance department is either a high-pressure environment with a large remit or a relatively well-resourced unit. However, it isn’t all plain sailing for finance leaders in such companies with only 8% of CFO-CEO transitions achieving upper-quartile performance[i]. Ultimately, most accountants focus on increasing profit rather than driving growth.

Fixing finance first

In achieving business growth, the foundations of a business must be solid, efficient and scalable. Additionally, the organisation must be set up to leverage the benefits of innovation to find competitive advantage. But wait! What if our orders are getting stuck, what if suppliers are not being paid, what if invoices are not being issued? A problem in your lead to cash journey slows down the time to get paid. Similarly, a problem in your trouble to resolve processes mean that suppliers refuse to provide the products or services you need. Hmm, seems like it would be a great idea to fix finance first?

In the same way that some HR departments take criticism if staff engagement levels fall or churn rises (sometimes both), finance takes criticism when things don’t go well. In order to fix things, it really needs a strategy for finance. Where are we today, where do we want to be and how do we get there? A little investment, the right advice and a sustained transformation can help one of your business foundations start to drive benefit. Crucially, it is much more than replacing the accounting system with another, it is a vision for modern finance.

10 benefits of a finance first approach

Firstly, finance is much more than a keeper of scores. It enables the business to operate efficiently, scalably and profitably. Secondly, finance is more than a burdensome cost of compliance – it can add value, too. There are plentiful benefits of a finance first approach in business, such as:

1.????Diligence over any substantial investment or acquisition (spot any issues).

2.????Commercial nous on commercial decisions (will it really make money?).

3.????Detailed management of cashflow (never run out of cash).

4.????Reduced losses, fraud and compliance lapses (protecting directors).

5.????Proactive risk management (protecting the business).

6.????Sound financial management (appropriate accounting).

7.????Effective advice on financial matters (fully-informed decisions).

8.????Critical thinking and an analytical mindset (challenge your assumptions).

9.????Partnership with procurement (optimise vendor management).

10.?Constant awareness of financial implications (protecting everyone).

Heart of the machine?

There are circumstances where it makes complete sense to lead with a finance first mentality, especially when running into financial difficulties, making large investments or acquisitions. However, it is the day-to-day, BAU processes that often hold businesses back. For example, try moving from 100 orders a month to 10,000 with no investment in finance. See what happens when you grow dramatically without control, opening yourself up to losses, fraud, compliance issues, VAT audits, fines, penalties and even striking off. Unfortunately, most finance teams in the private sector operate on a shoestring, with inadequate systems, tools and resource. This potentially leaves a team exposed, doing the best they can. Furthermore, they lack the automation you need to scale, the insights they need to support you and the value add you wish they brought.

Objectively, finance brings a skillset that is often very different to the ‘go-getting’, dynamic operators who strive for rapid growth. These vibrant, determined and often ‘force of nature’ characters like to take risks, often banking on their ‘gut’ and experience to win through. Additionally, these personalities are often bored by the detail, seeking rapid action and outcomes. A useful counterbalance to such dynamism and risk-taking is to involve finance to focus on the detail, facts, numbers, analysis and low risk perspective. A good CFO will support but also challenge a CEO who wishes to go on an acquisition spree, for example.

Putting finance first and growth alongside

Here at Think Beyond, our principal consultants focus on opposite ends of the value stick: Steven focuses on efficiency, control and profitability; Mercè focuses on lead generation, commercial propositions and account-based marketing. Better still, they collaborate on research, strategic planning, CX, EX and many other areas. This gives them a ‘dual-view’ of the top and the bottom of the value stick. So, why accept anything other than upper-quartile performance?

If you would like to request an appointment, simply email us to book yours. Alternatively, we will call you back if you put in a request online.

Finally, why not check out a recent article about decision-making in turbulent times.

[i] https://www.cfo.com/human-capital/leadership/2022/07/cfo-promoted-to-ceo-driving-revenue-growth-outperformance/