There is an underlying stigma that management can tend to keep the accounting department separated from the operations management of the company. Often, the back office accountants look at numbers after the fact, providing less insight and more archival and data management. However, there are some very good reasons to start having more conversations with your entire accounting team during the overall management process instead of a one way flow of information after the fact.
In the most profitable companies, the finance and accounting team “role continues to evolve to that of an architect of business value,” explains Accenture. “It is moving toward driving business growth and managing complexity while controlling costs.” Specifically, the emphasis is on aligning strategy throughout the company and managing business performance. Research from PWC backs this up. It found that when companies spend 20 percent more time analyzing company data, they can run at 40 percent lower operating costs.
1. Do Business Decisions Line Up With Financial Analysis?
One of the biggest issues that companies face is a mismatch between business decisions and financial analysis. CEOs and company managers tend to make decisions about the operations and future of the business based on their assumptions about the market or a high-level overview of company finances. However, financial analysis can provide much-needed insight. For instance, a company may find that one product type is significantly more profitable than another or even find that a particular service or department is a tremendous drain.
2. What Is Preventing Growth?
Every company has constraints that prevent achieving full potential, such as high overhead costs or a large amount of debt. Your finance team knows these issues and may be able to effect positive change. “Consider a company with a heavy debt burden that was paying an interest rate more than twice the rates available to its competitors,” explains Deloitte. “Here the cost of debt capital was a critical constraint, given that competitors could finance growth through M&A and other strategies much more cheaply. In response, the CFO enabled a sale of a large stake in the company to a strategic investor, raising capital and relaxing the finance constraint.” However, your finance team cannot impact this type of change if you don’t ask them to participate in the conversation.
3. What Costs Are Arbitrary?
When it comes to cutting costs, many companies make the mistake of cutting arbitrarily, imposing a restricted budget on a team or department and impacting their profit margins negatively. However, this type of belt-tightening often backfires, and companies find the cuts “happened at a rate that was too slow to protect the company's underlying profitability or the cuts were too indiscriminate and risked compromising future growth,” explains Ernst & Young, “or, worst of all, it may have done both.” Talking to your bookkeeper helps prevent this from happening. Develop a better understanding of your company’s cost drivers by having a conversation with your finance team.
4. Where Should We Invest or Expand the Company?
Your finance team can also help inform management decisions about which aspects of the company would benefit most from investment, as well as those areas of operations that contribute the best profit margins while attracting enough demand to support increased production. “During a period of growth, knowing how to optimize marginal revenue and contribution is more difficult to determine than simply reducing marginal costs while protecting revenues,” says Ernst & Young. “You need to ask yourself the same question, but in reverse: rather than where should the next unit of money be saved – instead ask ‘where should the next dollar of investment be made?’” Your finance team knows which areas of your business contribute the most to your bottom line and which aspects deliver the most impact.
5. What Is Our Timeline?
Of course, there is more to allocating finance than simply knowing where to assign it. You also have to know when to make those investments. If your finance team knows how you intend to grow, they can ensure you have enough capital to make investments in your business, and they can make sure the money is available at the right price and terms for your company.
6. How Can We Handle Uncertainty?
Your bookkeeper and finance team can also help you prepare for the unexpected. Deloitte uses the example of asbestos in a recent CFO Insights report: “Say the company has potential asbestos liability because the chemical was formerly used in some products, and the uncertainty around that liability is constraining the company’s share price and keeping it from making aggressive growth plays. That doesn’t sound like something a CFO can fix. But what if you were to go to the legal counsel and say, “Let’s figure out what it would cost to settle this potential litigation, and see, given our current cash flows and the low-rate environment, whether it’s worth that price to get rid of that uncertainty.” Your finance team can model different risks and decide how the company can best insure against those scenarios.
The role of finance within businesses is evolving as companies find more ways to reduce costs and improve performance across the board. Your finance and accounting team can often see trends and opportunities that are informed by the numbers. In turn, your management can use that information to improve operations and boost profits.
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