Growing small businesses need a robust finance function

Finance function warning signs:

A strong finance function is critical in any organization, even more so in a growth business.
The objective of the finance function is twofold. To add value through information and insights and secondly to protect the assets of the organization. The second objective should never be compromised by the first.

If you do not know how the business is performing, how can you possibly manage it. How do you keep a handle on costs, optimize your expenditure and know which products , services or clients are making you money and which are costing you money. As a Company Director 1 of your duties is to ensure proper books and records are maintained. 

A weak finance function will not achieve either of these objectives, for the following reasons:

• The focus is often on transaction processing, there is insufficient time for analysis and reporting
• Staff are usually not highly skilled
• There is a lot of time spent correcting errors and having mild heart attacks from incorrect cashflows and P&L's
• Poor credibility within the organization to give direction and discipline, especially in areas such as staff expense claims

Key warning signs include:

• Difficulty in obtaining ad-hoc reports
• Management reports arriving late and an increasing error rate
• Increasing number and complexity of reconciliations and the time to complete these reconciliations
• Increasing clerical type staff in the finance function
• High reliance on spreadsheets and manual processes
• Defensiveness of finance function staff, with no vision for the future finance function
• Write offs to miscellaneous accounts
• Very little investment in staff and systems

Why does this happen?

The importance of finance is not identified until it is almost too late. Finance is also sometimes lead by a long term friend or confidante of the founder.'

 
As the business is growing more complex, requiring new systems, reporting, meeting new regulatory requirements and new processes, finance is coming under increasing pressure to just keep up in what is usually a predominantly manual processing environment, without the skills and knowledge present to take finance to the next level.

Without intervention and support from senior management, making the necessary changes to get finance back on track is hard. Inaction by senior management can result in penalties and fines for non compliance and adjustments to statutory accounts.

Common traps in managing finance:

• When you need new systems, conduct a selection, do a business case and invest appropriately. Do not avoid the system issue
• Ensure you have the right skill level leading the finance function
• Benchmark the finance function if possible or get a finance function diagnostic completed by appropriate advisors
• Get involved in the development of policy and process for the finance function and support this where it impacts other departments
• Investigate and understand all penalties and fines incurred and the reasons therefore.

Get informed and learn more about growth business characteristics in our growth business section. Rad more about transforming the finance function and finance function strategies and diagnostics in our finance function section.