5 Financial Indicators That Your Company May Need a Finance Transformation
The definition of a Finance Transformation varies across companies and industries. It can loosely be defined as a strategic initiative aimed at fundamentally changing how the Finance Function operates to achieve a significant improvement in current performance. The general goal of any Finance Transformation is to align Finance with overall company strategy in order for it to become more efficient, effective and provide better service to internal customers and external stakeholders.
Defining when a company may need a Finance Transformation is difficult. It is never “just one thing” but a series of small paper cuts that may initially be covered up with band-aids. Due to the rapidly changing business environment, more paper cuts quickly materialize. Soon the focus of the entire Finance Function becomes fixing and deploying new band-aids, impacting productivity and starving resources from the strategic, value-added activities that can increase a company’s value.
Entropy driven Finance Transformations is often demonstrated through the frustration of your accounting and finance staff (demonstrated through high-turnover and long hours) as well as the lack of quality reporting and analysis to drive executive decisioning. The need for a Finance Transformation can also be triggered by an event such as a:
Change in ownership transaction
Recapitalization (E.g.: debt issuance)
Initial Public Offering (IPO)
Merger or Acquisition
Divestiture
Restructuring
ERP or the implementation of another large-scale system
Finance Transformations initiated by an event are typically more complex and are required to be executed at within an abbreviated time frame in order to achieve desired goals. Frequently, Companies undertake a Digital Transformation in conjunction with a Finance Transformation to increase ROI.
How Do I Know When The Time is Right?
To determine if your organization needs a Finance Transformation, you can combine the qualitative indicators above with the analysis of various quantitative metrics described in this blog series which can be can be compared to peers, and analyzed over time, to identify potential signals for change. This is not an exhaustive list and other qualitative and quantitative factors should be used to assess the need for a Finance Transformation.
If looking for peer data, an excellent source is APQC’s Open Standards Benchmarking® (OSB) service which allows an organization to upload their information and receive a customized report back. Using this database, industry-relevant data sources, and its own historical financial performance, a company can gauge when, and if, a Finance Transformation would add value.
In the following series of blog posts, I put forth 5 metrics that can indicate a Company’s need for a Finance Transformation.
Rapid Growth of Finance Function Expenses
Financial Forecast Cycle Time
Annual Budget Cycle Times
Monthly Close Cycle Time
Finance FTEs Per Set $ of Revenue
Individually, a variance from peers or an increasing/decreasing trend may not indicate the need for a Finance Transformation, but when combined with other qualitative factors it may become apparent to CFOs, Controllers, FP&A and other Finance professionals that a Finance Transformation would add significant value to an enterprise.
Don’t Go It Alone
Planning and effectively executing a Finance Transformation is hard work. It requires executive buy-in, a careful assessment of a Company’s existing processes and procedures, the identification of pain points, gap analysis, prioritization of initiatives and program management. The ability for an existing resource to take this on in addition to their regular duties is a recipe for failure. Using an external partner to work in conjunction with an internal designate produces the optimal mix of internal knowledge and external resources to produce tangible results.
