Corporate Financial Management

Building and sustaining a company requires many functions to be carried out professionally, and adequately. From product development, to sales, marketing, and accounting for transactions and reporting business results and performance indicators. To build these blocks and have a nice, reliable and sustainable structure, every function, task being completed must be reliably developed, and connected to other functions in a way or another, so the building blocks are overlapping, and complementing each other.

This overlapping, or connections, are described as the workflow, or business process from the business analysts’ point of view. The responsibility of building a strong business process is levied upon senior management, to make sure that every circle of the chain creates the value intended from its creation in the first place. Data will flow between those circles, or chains, to eventually provide meaningful, reliable, insightful information, trends, and patterns of the company business performance to decision makers, who are the main consumer of such information.?

In my work in finance in the past 20+ years, most of which I spent as leader of financial management department, in many industries, I witnessed that business processes, and the quality of functioning of each circle of the value chain, is incredibly important, and may have snowball effect if not corrected. Tiny mistake in recording a transaction, disregard a risk, or delay in following up with a client, in any department, will have a significant impact on company culture, as well as financial results. Therefore, senior management need to have eagle eye to monitor, and correct the performance promptly.?

To reach such a state of awareness; we must monitor the company workflow, or business process, and how they are managed, monitored, and updated to continuously improve performance, culture, learning, feedback, leadership, and financial results.

I have consulted many businesses in the last 7 years as interim CFO, and the main problem almost all had, was lack of strong business process, even companies which had little innovation or none, however had reliable business processes, were way ahead of more advanced companies, who had such innovative ERPs to collect and manage data and produce information to decision makers. Being less innovative is yes, a problem, and may take longer time to create insightful information, however they are much more reliable when it comes to group efforts, and collective production.

Part of this value chain, or circle of functions, is the F&A (finance & accounting) department. Having a reliable and trustworthy team, process, and innovation in this domain, much result in a strong and timely management decisions, hence higher probability for success.?

To identify what does it mean having a strong financial management department, we need first to outline what characteristics such a department should have:

1. Clear Financial Planning and Budgeting

• Best Practice: Establish detailed annual budgets and rolling forecasts that align with business strategy.
• Practicality: Implement budget controls without overcomplicating systems; use cost-effective financial software like QuickBooks or Xero.
• Benefits: Helps ensure resources are allocated efficiently, supporting growth while preventing overspending. It creates financial discipline and encourages data-driven decision-making.

2. Accurate and Timely Financial Reporting

• Best Practice: Monthly and quarterly financial reports with clear KPIs (e.g., profitability, liquidity, cash flow).
• Practicality: Use cloud-based accounting software to automate reporting and reduce errors. Have a small but competent team that understands how to interpret the data.
• Benefits: Enables business owners to quickly assess performance, make informed decisions, and satisfy regulatory requirements. Accurate reports also help identify problems early on, reducing risk.

3. Effective Cash Flow Management

• Best Practice: Create cash flow forecasts that are reviewed regularly to ensure liquidity.
• Practicality: Focus on practical tools like Excel templates or apps that help track daily cash movements without expensive software.
• Benefits: Good cash flow management ensures the company can meet its obligations, invest in growth opportunities, and avoid unnecessary debt.

4. Cost Control and Efficiency

• Best Practice: Regularly review operational costs, negotiate supplier contracts, and focus on cost-saving initiatives.
• Practicality: Implement zero-based budgeting or lean management practices. Consider outsourcing non-core functions to reduce overhead.
• Benefits: Maintaining cost control without sacrificing quality helps increase profit margins and operational efficiency, directly contributing to stronger performance.

5. Strategic Financial Leadership

• Best Practice: A CFO or financial manager who collaborates with other departments to align financial goals with business objectives.
• Practicality: For smaller businesses, consider "CFO as a Service" or fractional CFOs instead of hiring a full-time executive.
• Benefits: Having strategic financial leadership ensures that financial decisions are proactive, driving growth and innovation instead of merely reactive.

6. Strong Internal Controls and Compliance

• Best Practice: Implement a system of checks and balances, including separation of duties and regular audits to minimize risk.
• Practicality: Outsource internal audits or adopt a standard internal control framework like COSO without the need for a dedicated team.
• Benefits: Strong internal controls reduce the risk of fraud, ensure compliance with laws and regulations, and protect company assets.

7. Data-Driven Decision Making

• Best Practice: Use financial data to guide business decisions, monitor performance, and adjust strategies as needed.
• Practicality: Invest in affordable Business Intelligence (BI) tools or integrate dashboards into existing accounting software.
• Benefits: Data-driven insights can highlight trends, opportunities, and risks, helping the business to be more agile and better prepared for market changes.

8. Efficient Payroll and Tax Management

• Best Practice: Ensure accurate, on-time payroll processing and compliance with tax regulations.
• Practicality: Use automated payroll solutions and tax filing software to minimize errors and reduce administrative burdens.
• Benefits: Timely and accurate payroll boosts employee satisfaction, while proper tax management avoids penalties and ensures legal compliance.

9. Business Performance Analysis

• Best Practice: Regularly conduct financial analysis, including break-even analysis, ratio analysis, and scenario planning.
• Practicality: Train your team on simple financial analysis techniques or hire part-time analysts when needed.
• Benefits: Understanding your business's financial health and performance at a granular level supports long-term planning and decision-making, contributing to sustainable growth.

10. Risk Management and Insurance

• Best Practice: Implement a risk management plan that identifies financial risks (e.g., credit, market, operational) and mitigates them.
• Practicality: Regularly review insurance policies, negotiate terms, and ensure coverage aligns with current business needs.
• Benefits: Effective risk management helps the business avoid costly disruptions and safeguards against unforeseen events that could harm operations.

11. Continuous Improvement and Training

• Best Practice: Invest in ongoing training for finance staff to ensure they are up to date with industry trends, regulations, and technologies.
• Practicality: Provide access to affordable online courses or industry certifications that enhance the team's skills without incurring high costs.
• Benefits: A well-trained finance team is more capable of adding strategic value to the company, driving efficiency, and adapting to changes in the business environment.

12. Integration with Business Strategy

• Best Practice: Ensure the financial management department is not siloed; it should actively collaborate with other departments (e.g., operations, sales, marketing) to drive company goals.
• Practicality: Hold regular cross-departmental meetings to align financial priorities with overall business strategy.
• Benefits: Finance becomes a true partner in the business, contributing to innovation, growth, and long-term value creation.

13. Use of Technology and Automation

• Best Practice: Leverage automation for routine tasks like invoicing, expense management, and reconciliations to free up time for strategic activities.
• Practicality: Choose cost-effective automation tools that integrate with existing systems. Cloud-based platforms are often more affordable for medium-sized businesses.
• Benefits: Automation reduces errors, improves efficiency, and allows finance teams to focus on value-adding activities rather than mundane tasks.

14. Strong Vendor and Customer Relationships

• Best Practice: Finance should actively manage vendor and customer credit terms to optimize working capital.
• Practicality: Negotiate favorable payment terms with suppliers and offer discounts for early customer payments where feasible.
• Benefits: Improved cash flow and reduced dependency on external financing, leading to healthier financial stability.

You can measure how your financial structure aligns with above listed best practices, weighting your strength on the scale, and identifying gaps. After gap analysis you can prioritize most valuable elements to consider for immediate implementation and measure the performance accordingly... "To be continued next week"

*Sources of best practices:?

Brigham, E.F., & Ehrhardt, M.C. (2019). Financial Management: Theory & Practice (16th ed.). Cengage Learning.

• A comprehensive guide to financial management theory, which includes discussions on budgeting, cost control, and risk management.

Horngren, C.T., Datar, S.M., & Rajan, M.V. (2018). Cost Accounting: A Managerial Emphasis (16th ed.). Pearson.

• This text covers cost control, budgeting, and performance analysis, which are integral to financial management practices.

COSO (Committee of Sponsoring Organizations of the Treadway Commission). (2013). Internal Control - Integrated Framework.

• Provides guidelines for establishing strong internal controls within an organization.

KPMG (2020). Global Financial Reporting and Disclosure Best Practices.

• Offers insights into the latest financial reporting and compliance best practices relevant to medium-sized businesses.

Kaplan, R.S., & Norton, D.P. (2008). The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Harvard Business Press.

• Discusses aligning financial management with business strategy, which is crucial for driving company performance.

PWC (2022). The Power of Automated Financial Management for Medium-Sized Businesses.

• Highlights the importance and impact of automation and technology in financial operations for medium-sized enterprises.

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