It’s now time to look at the Business Finance Function but before we go into details perhaps a proper definition of what business finance is would be due. If you do a simple google search on the term “business finance” it will tell you that it’s the discipline of how you finance your business. That’s not the definition we use though and when you see business finance teams pop up in many companies it’s not because they want a fresh look at how to finance their business. Rather business finance is…
“…the alignment of the finance function and business operations i.e. the frontline with the goal of finding the best way for finance to support the business”
In a business finance team, you would typically find either financial analysts or finance business partners depending on the maturity of your finance function. The problem for many companies is that they are not getting the value they need out of their financial analysts and business partners. Just take a look at this article from CFO.com and you can clearly see that CFOs are not getting what they thought they paid for. This is the most frustrating part. They know they need this. They are willing to invest money in getting it. BUT they are just not getting a return on their money.
So, where does it all go wrong? From what we have seen there are a couple of things Finance needs to do differently to get the expected return from their investments in business finance (or FP&A depending on where in the world you’re located).
- Finance needs a better plan for what it wants from its financial analysts and business partners. Way too often the plan for creating a business finance function has been “let’s hire some really good finance people and ask them to go partner with the business” Using this approach without considering the state of the rest of the finance function means you will most likely end up with a less effective business finance function.
- Finance needs to execute better on the plan. It requires rigorous follow-up with the financial analysts or business partners to ensure they have both the support they need in the form of tools, one set of numbers and a well-functioning finance function and that they quantify their results and successes.
On the first point, the key element is to create a plan with a significant amount of detail. Historically the expectation has been that financial analysts and business partners being smart people would by instinct know exactly how to go and create value for the business. Naturally, a selected few would know but the clear majority would need further guidance. This guidance should include.
- A detailed job description
- A detailed overview per responsibility in the job description including
– Who are the stakeholders
– What reports are used
– What meetings are involved
– What are potential outcomes and actions from finance’s involvement
- A well-defined systems landscape and data definitions supporting one set of numbers
- A good support structure of peers from other countries, business units etc. to challenge how to become even better and to share best practices
In the execution phase, one thing is to follow the guidance but another is to create results. This needs to be measured in monetary terms as that’s what matters in the end. It doesn’t mean that Finance should create this value all by themselves or be credited the value of decisions and outcomes created by the business. It just means that where Finance is involved or supporting decision making where a monetary value can be measured Finance should celebrate the results to ensure all financial analysts and business partners have role models to turn to. Whether this is done via rewards, awards, public recognition etc. is not that important but the important bit is that you commit to creating results that improve the bottom-line rather than just being satisfied with being part of a meeting or helping someone create a new report. A business finance function must ultimately be able to create value for the business either directly through own initiatives or indirectly in collaboration with the business. If you’re not able to do that you haven’t justified your existence.
So, there you have it. Enough talking about creating a finance function that supports the business. It’s time to be very concrete about you want to do and then measure your results. If you set objectives for your finance business partners, then you need to attach a value to them. Find X amount of $ in savings, improve customer mix for Y amount of $ in additional revenue etc. Of course, you need to have a stringent process for evaluating the $ impact including the buy-in and accept from your stakeholders but if you want to make your CFO less frustrated about the poor returns from money invested in business finance then this is what you need to do.
What are your thoughts on business finance and how Finance can become a value creator in collaboration with the business? Are you being measured on your $ impact on the business or is it a vaguer approach? Would you even be comfortable having your performance measured like this? After all, you’re not a commission-driven sales person so we’re curious to learn what your view is?