How FP&A can maximize asset efficiency in your business
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
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How hard are your assets working? There is significant value to be gained from visibility over all the assets of the company, whether that’s cash, inventory, or fixed assets from real estate to machinery. As a large organization takes on a life of its own, there is a risk that the focus slips and systems and processes become fractured and cumbersome.
FP&A is perfectly placed to shed new light on basic processes, make sense of decades of documentation, and tap the benefits of emerging technology to drive value from the company’s assets.
Working Capital efficiency
This is part of the bread and butter of finance. In their very first year of study, every budding accountant is taught the balancing act of working capital, the complex interplay between receivables, payables, inventory, and cash. The driver when teaching those relationships is for students to understand where cash may be locked away in the business and how to release it.?
Having cash in the business delivers value to shareholders. The security of a cash-rich business has been clear for decades, following the collapse of several high-profile listed companies whose fat profits disguised empty coffers.
Maximizing the amount of cash in the business at any one time, detailed and granular cash planning, and using treasury functions such as overnight or short-term lending to earn from the excess, should be second nature.
How can cash balances be maximized? For incoming cash, ensure that it is easy for customers to settle their accounts in a timely manner. This could involve user-friendly payment rails, discounts for early settlement or regular debits rather than the punishment of accrued interest, and transparent terms and conditions.
For outgoing cash, and for the management of inventory, consider when resources are needed and what the macroeconomic conditions dictate. Look after your suppliers, too. Shareholder value can be measured in more than just money. Paying on time builds the ethical reputation of the business.
Property, plant, and equipment
Managing real estate, infrastructure, equipment, and systems is a whole different ball game and one where there is value to be mined. The simplest approach is to start with measurement. After all, you can’t manage what you can’t measure.
What is the current state of the assets in question? How are the records kept? Can the heady mix of paper documents and disparate spreadsheets be brought together to give a full picture of the estate? Once you know where you’re starting from, it’s easier to identify the critical paths of information that will help to keep this part of the business optimized and efficient and driving value.
Emerging technologies are proving their worth in this field. Blockchain is being used to create a golden copy of data about property, plant, and equipment. IoT sensors and edge computing to connect older devices can report the real-time condition of a machine, minimizing downtime.
Deep learning insights from data can help to predict the failure points and life cycle of assets, improving planning and maximizing asset value.
Next steps
Get ready to maximize visibility over all the assets in the company’s estate. Dig into the reasons why things are managed in particular ways, and question whether the current data makes that treatment or management appropriate now.
Property, plant, and equipment in particular can suffer from obsolete management processes thanks to their longevity, and it’s important to avoid complacency with working capital. Embrace emerging technologies to measure what you need to manage, and to bring transparency to complex records.
How have you shaken up the management of the company’s assets? What kind of value creation have you seen? Let us know in the comments.
This was the fourth article in our new series "How FP&A can drive shareholder value". Subscribe to catch the upcoming articles and read the previous article(s) below.
Continue reading below the previous series about the use of AI in FP&A.
Keep reading to catch our full previous series "It's time to fix management reporting" below.
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Anders Liu-Lindberg ?is the co-founder and a partner at?Business Partnering Institute ?and the owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 11,000 members. I have ten years of experience as a business partner at the global transport and logistics company?Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a?long-time Finance Blogger ?on LinkedIn with 270,000+ followers and 310,000+ subscribers to my blog. I am also an advisory board member at?Born Capital ?where I help identify and grow the next big thing in?#CFOTech .?Finally, I'm a member of the board of directors at?PACE - Profitability Analytics Center of Excellence ?where I support the development of new analytics frameworks that can improve profitability in companies around the world.
Strategic Planning Specialist at Vispar | MBA Graduate from Amirkabir University of Technology
1 年Mohammadhosein Hezarkhani
Accounting and Tax Services for Small Businesses.
1 年FP&A contributes significantly to driving operating efficiency. However, I think we sometimes need to look beyond just financial measures. I once worked for a manufacturing company. We realized that the usual financial ratios for measuring asset effectiveness were not meeting our needs. We wanted metrics that could drive actions on the shop floor, so we implemented Overall Equipment Effectiveness (OEE). I believe it was developed by engineering professionals.
Advance Your Finance/Data Career ?? with English Communication Skills ?? | Specialist English Communication Skills Coach
1 年You raise a good point on maintaining an open mind to technologies or tools that can measure asset efficiency, Anders. This is a similar concept to measuring employee productivity. I suspect similar technology could be used to more accurate measure the depreciation of assets, and perhaps this will be factored into policy in future.
Helping Finance Managers of ‘busy’ SMEs improve profits | Turnaround 'busy' loss-makers | Improve profits of the already profitable | A proven step-by-step process | 90-day projects | Training & Coaching throughout |
1 年It's important for a business to establish what is it's limiting factor. And once done, manage both how (1) EFFICIENTLY and (2) how EFFECTIVELY it is using that factor.
On a Mission to Help 1M Finance pros Master FP&A skills | Author of All About FP&A and From Accounting to FP&A | Udemy Instructor | Building FP&A Professionals Institute
1 年Key Takeaway: FP&A can drive value by gaining visibility over company assets, optimizing working capital efficiency, and leveraging emerging technologies to drive performance. Thanks for the insigts Anders