4 ways to improve financial operations

By Jack Perkins, Founder at CFO hubwhich provides on-demand CFO, Controller, Accounting and HR services.

Managing your financial activities is essential to achieving success in your business, with accounting and finance teams providing essential financial tasks and information to support key leaders.

Those leaders rely on well-executed, timely processes and receiving accurate data from those teams to make strategic decisions that reduce costs, increase efficiency, and focus on value-added activities.

But if your financial processes are inefficient and the right technologies are not implemented, you will lack the visibility and control needed to survive in today’s hyper-competitive marketplace.

The good news is that no matter where your financial activities are on the maturity curve, there are practical steps you can take to optimize your processes and performance.

1. Create a clear overview of all business processes with process mining.

Financial processes are ripe for optimization. According to McKinsey42% of all finance functions could be fully automated, and another 19% could be largely automated.

And yet a common problem is that business leaders do not have a clear understanding of all their financial processes. That problem is only exacerbated by the fact that there is often a mismatch between how those processes function in theory and their actual execution.

As Ernst and Young notes that the dissonance between theory and practical application puts business leaders in a dangerous position:[I]If written processes are not or insufficiently complied with, you run the risk that certain checks are skipped, or that decisions are made on the basis of incomplete or incorrect information.”

One of the most effective methods of dealing with this problem is: process mining, which can create models and simulations based on your actual event logs. Likewise, advanced process mining software can help identify where your logged event logs differ from your models.

By deploying this powerful analytics software, you can capture data from your various systems and actual process execution to create end-to-end clarity.

2. Ask yourself ‘why?’

Once all your financial processes have been mapped, you are almost ready to act.

But before making any changes to a particular process, your first task is to ask why it’s there at all. In many cases, processes exist simply because they have always been done that way.

But can they be done in a better way? In fewer steps? Or can they be removed altogether?

While process mapping can help identify areas for improvement, there are certain aspects that are unique to your business that automated systems, no matter how powerful, simply cannot address.

For example, there could be legacy technology implementations that create information silos, inefficient reporting processes, outdated compliance efforts, or tasks that require your finance and accounting experts to waste time on tedious, manual work. Whatever the problem, the “why” question is an addition to your process map.

By combining the two, you can make the necessary changes to:

• Increase productivity

• Driving efficiency

• Ensure compliance

• Strengthen risk management

• Avoid bottlenecks

3. Use an ERP for month-end closing.

The faster your reconciliation process, the better. According to Deloitte“Top performers close, consolidate and report in 10 days on average, while the lowest performers need between 20 and 30 days.”

Financial transactions are usually at the mercy of the month-end close. All other business activities are left out — or at least put on the back burner — as the accounting team’s time is consumed with month-end activities such as:

• Record journal entry

• Preparation of annual accounts

• Transaction processing and reconciliation

The more time you spend reconciling, the less time your financial operations have to focus on analytical insights and value-added decision-making efforts.

How can you speed up the process? How can you shoot for the best-in-class closing standard of two to three days?

Again, technology can automate many of these problems.

Admittedly, an ERP system cannot automate all aspects of closing, consolidation and reporting. But it can address the more unproductive areas or the bandwidth wasted on manual data entry and error recovery.

In any case, integration with a centralized ERP system can synchronize and keep all your financial systems and resources up-to-date. As a result, you can avoid much of the confusion and unnecessary complexity that results from different finance teams struggling with data in silos that may be incomplete or inaccurate.

4. Think beyond transactional activities.

Improvements in financial operations usually focus on transaction functions such as accounts payable and accounts receivable. That’s because such activities are usually easier to automate.

As a result, many of the processes have already been drastically improved. And while there is still room for further optimization, the ROI of such initiatives may decrease.

Instead of, McKinsey suggests that you look at the strategic areas of your financial activities, such as:

• Financial planning and analysis

• Optimizing capital structures

• Tax planning

• Control

• Internal audit

• Financial risk management

By focusing your efforts on value-added financial activities, you can unlock internal efficiencies and make better use of your staff’s time.

Drive improvements in your financial activities.

Finding areas to improve your financial activities may seem like a daunting task. But it doesn’t have to be, not if you take a strategic, deliberate approach that takes advantage of the various technologies available to you. It all starts with visibility.

Gain insight into your financial processes and data and gain control over your operations.