GROUNDHOG DAY ACCOUNTING IS OVER!

By Mark Jenkins, CFO at MHR International

 

It’s not all about reporting the numbers anymore – it’s about understanding what they mean for strategic decision making!

When someone wants to know what’s going on in a business, finance is usually the best team to ask as they have organisational-wide insights on both costs and operations. Finance has access to this information as they are the ones entering historic data into journals and collating this information into monthly reports. However, it’s time for this form of ‘Groundhog Day’ accounting to come to an end – rather than simply inputting figures into spreadsheets, finance should be using these figures and important business insights to help inform the strategic decisions needed to ensure a healthy and resilient business.

Relying on manual methods of data collection not only stifles the productivity of highly trained professionals but also increases the margin for errors. And, with reams of spreadsheets to analyse, often there’s little time left to uncover hidden pattens or trends. However, it doesn’t have to be this way! Rather than providing C-Suite with a top-line view of the numbers, the adoption of financial analytics software can offer a far more comprehensive analysis of cashflow. This not only enables faster, more informed decisions which, in turn, maximises revenue opportunities but it also gives businesses the tools needed to adapt and change strategies when faced with challenging scenarios. Ultimately, the availability of this analysis means decision-makers can drive the organisation forward without needing to rely on the figures in a report created last month or their gut instinct.

 

Don’t run before you can walk

Mark Jenkins

Planning analytics tools can help finance teams obtain data more quickly and in a consistent format, aiding their ability to design and build profitability models while improving cashflow visibility. From a cost point of view, this means being able to calculate internal rates of return earlier, supporting the more efficient spending of cash. From a business perspective, this provides the insights needed to adapt to market changes and/or bring in new revenue streams e.g., developing new products, tapping into alternative markets, mergers, and acquisitions etc. However, before implementing an analytics tool it’s essential to have the right data and processes in place as poor data cannot offer any meaningful outcomes.

While it has always been best practice to ensure data accuracy, the pandemic has highlighted its importance more than ever as many companies have been operating with tighter margins and cashflows. Therefore, process optimisation and data cleansing should be performed before using an analytics solution. The latter involves identifying and removing corrupt, duplicated, or inaccurate data from the system. This, itself, can be challenging, as the process is time-consuming, laborious and requires an element of introspection to ensure poor quality data isn’t working its way back into the system. This can be daunting for businesses who don’t have the resources or funding to initiate this project – yet the benefits far outweigh the costs as only accurate data can help inform the strategic decisions needed to create opportunities and mitigate financial risk. Aside from this, it also ensures the company is audit ready, mitigating the risk of potential hefty penalties or fines.

 

Improving financial literacy

Another hurdle is making sure everyone in the organisation is onboard and aware of the advantages financial analytics can deliver. Think of it in terms of an insurance policy. It helps finance keep sight of what going on in the business, identifying trends and informing strategies, meaning it can help predict problems before they happen. As previously mentioned, some companies choose not to adopt an application due to lack of resources but, on the other hand, others that are operating best practice procedures such as effective data management might assume it is not needed until a crisis occurs. Additionally, there may also be a reluctance for finance to move out of their comfort zone. With the majority of these professionals proficient in Excel, it can be a vicious cycle to break. Yet, there is room for both spreadsheets and analytics; it’s about knowing which tool is right for the job. As many businesses will know, there is more to accountancy than just putting numbers in a box. Embracing analytics can compliment their talent for interpreting and analysing figures not just for the entire organisation but also at a departmental level.

While it might prove challenging to overcome some of these barriers, the pandemic has forced steps to be taken in the right direction. Rather than finance and senior management driving initiatives to improve cashflow, it has now trickled down the layers of the business. With limited bandwidth, every department needs to be cost and revenue conscious, and must find ways to generate financial efficiencies. In other words, they need to be ‘mini accountants’. A double-pronged approach is necessary to achieve this. Firstly, analytics tools will ensure the right information is being passed to each part of the business, breaking down data silos. Secondly, and to ensure each department is well equipped, CFOs should take on a consultancy role and champion use of the software and its benefits.

 

A leap of faith

There’s a full spectrum of businesses at different stages of their digital transformation journey, and it’s clear that there can be numerous obstacles to navigate when adopting an analytics solution. However, taking a leap of faith can result in significant rewards. Rather than looking at the short-term cost of purchasing the software, think about the returns such as scenario planning for cashflow, quantifying the impact of using different strategies, and teaching departments to take greater financial responsibility. This, combined with being an agile and flexible business will not only speed up the ability to make strategic, informed decisions ensuring survival in times of a crisis but also that each opportunity is being capitalised on.

 

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