Remember Jet Airways? The iconic airline brand that used to have more than 20% of the market share.
At its peak, Jet Airways posted a profit of Rs 1,445 crore on revenues of Rs 2,2692 crore in FY17. However, it incurred a loss of Rs 724 crore in FY18, followed by the insolvency plea in June 2019. So, what caused this dramatic downfall?
Well, it was based on a series of bad financial decisions by the management over time and no digital transformation strategy.
Managing a company’s finances can be challenging for founders and promoters, especially when their expertise lies in their product or field of passion. While the desire to make money is there, the intricacies of financial management often feel like navigating a foreign language.
It’s not just Jet Airways, several billion-dollar companies have faced insolvency due to poor financial management.
To address this, it’s crucial to upgrade your finance team so you can bridge these knowledge gaps and provide valuable insights backed by comprehensive data.
But, how do you build this finance dream team and avoid financial mismanagement blunders?
Your Ideal Finance Function
First, let’s focus on what your optimum finance function would look like:
- Digital Transformation Solutions:
Technology is rapidly transforming finance operations. A recent report reveals that around 93% of US firms with revenues exceeding $25 million are actively integrating digital technologies into their accounting processes.
This shift is particularly noticeable in areas like accounts receivable (AR) and accounts payable (AP), where manual tasks are being automated. Consequently, finance departments are requiring less staff for routine tasks, allowing them to redirect their talent toward strategic planning.
- A Focus on Resilience:
With rising inflation and supply chain disruptions, preserving cash flow has become paramount for businesses. Finance functions, led by the Chief Financial Officer (CFO), are increasingly relied upon by CEOs for projections and forecasting to navigate these challenges.
The role of accounts receivable (AR) is pivotal in ensuring cash flow stability through digital transformation solutions, enabling quicker collections, and freeing up essential resources. Finance functions are now recognized as value creators within the organization.
- Demand for Digital Skills:
The shift towards digital transformation strategy and digital transformation solutions has led to a change in the skillset required in finance. Modern finance teams are dealing with large volumes of data, making data science skills essential. Automation, data literacy, and advanced analytics are highlighted as critical areas by experts. Finance leaders need to prioritize data-handling skills when considering new hires.
- Agile Teams and Flatter Structures:
Automation is reshaping finance teams, moving them away from rigid structures with many individual contributors focused on manual processes. This shift towards agility and autonomy is essential for finance professionals.
Borrowing elements from agile workflows traditionally used in technology and engineering, finance teams are becoming more flexible. Flatter team structures promote greater interaction between departments, particularly financial planning and analysis (FP&A), AP, and AR, facilitating the sharing of crucial data among team members.
- Customer Experience as a Priority:
Accounts receivable (AR) professionals possess a unique skill in effectively engaging with customers, crucial for collecting outstanding invoices while maintaining strong relationships. As finance processes become more digitized, finance teams are increasingly concerned with how the digital transformation strategy impacts the customer experience.
A survey indicates that 95% of CFOs recognize the benefits of digitizing AR and AP workflows for customers/vendors. Additionally, 70% believe that digitizing multiple AR and AP functions is vital for enhancing customer lifetime value. This shift places greater emphasis on considering customer experience and support skills when hiring for AR roles.
How to Build a Modern Finance Team?
Now that you have an idea of your ideal finance function, we have some steps to keep in mind while you build your finance dream team!
Creating a modern finance function is essential, whether you’re a fast-growing small business or an established brand. To implement agility effectively, follow these practical steps:
- Establish a Strong Foundation:
Instead of trying to do everything at once, focus on building a robust foundation. This includes implementing sound accounting practices, ensuring real-time data accuracy, and maintaining solid financial records. A strong financial foundation is essential as your organization grows, preventing potential chaos within the finance department.
- Identify Critical Functions:
The finance function in an organization typically comprises several departments, ranging from three to six primary functions. Here, we outline the key departments within a standard finance team structure:
- Accounts Payable (AP):
AP manages vendor payments and ensures contract obligations are met. While traditionally a cost centre, it can be transformed into a profit centre by leveraging data. This involves taking advantage of early-payment discounts and identifying top-performing vendors to enhance profitability. Integrating vendor management into AP processes also eliminates duplicate spending and unauthorized expenses.
- Accounts Receivable (AR):
AR is responsible for processing and collecting customer payments, including invoice issuance, reducing credit cycles, and resolving disputes. Automation of AR processes is crucial for efficiency in modern organizations. Real-time insights into AR data can simplify cash flow projections, release working capital, and streamline budget reporting.
- Corporate Treasury:
Corporate Treasury manages a company’s liquidity and capital levels. It identifies potential capital sources for new asset financing and ensures compliance with regulatory requirements. The size of the treasury department varies based on the company’s size and needs.
- Financial Planning and Analysis (FP&A):
FP&A plays a significant role in finance departments, leveraging technology to evaluate financial data trends and model future requirements. It considers both quantitative and qualitative factors to provide insights. FP&A teams collaborate closely with IT to prepare and deliver reports, including short-term cash flow analysis and budget versus actuals, to the CFO.
- Tax:
The tax department focuses on minimizing taxes and identifying available credits. Typically staffed with specialized tax accountants, this department is seen as an expense. However, investing in skilled tax professionals can result in substantial savings by identifying tax credits and deductions.
- Executive Functions:
The executive functions within the finance department are led by roles such as the Chief Financial Officer (CFO) and, in some cases, the Chief Risk Officer (CRO). In larger organizations, individual business units may have deputy CFOs reporting to the organization’s CFO. CFOs provide critical financial data to assist the CEO in charting the company’s future course.
- Foster Collaboration:
Connect your finance function with other departments in your organization. Collaboration is crucial for growth and building trust and transparency. CFOs should structure finance teams to provide guidance and insights to other departments, leveraging their deep understanding of the business.
- Harness the Power of Data:
Data’s importance is skyrocketing. The world’s data is expected to reach 175 zettabytes by 2025. Finance departments must grapple with increasingly complex data sets and distil them into actionable insights. Leveraging data can optimize costs, accelerate growth, and boost profit margins. Involving finance in your organization’s data strategy is essential for maintaining a competitive edge.
Now that you know what your ideal finance team looks like, I have some questions for you:
- Are you looking to digitize your finance processes?
- Need help with process re-engineering?
- Looking for the right partner to help you turnaround your dynamic organisation?
Visit our page to know more about how we can help you automate processes, find the right ERP system for you, and get the required reports and dashboards! – https://contetra.com/erp-implementation-solutions/
