3 Critical Elements of World Class Finance Teams
World-class finance teams need certain characteristics to make profits. Check out three areas where your finance team is costing you.
The costs of a weak finance team cannot be calculated. World-class teams not only handle compliance but also invest heavily in operations and strategy. They record the numbers by which your efforts are assessed, identify inefficiencies and risks. A great team can add shareholder value. Here are the top three areas where world class finance teams differentiate themselves:
1. Compliance:
This is the low hanging fruit that every accounting and finance team should do well. But this is more than just closing the books, reporting and payables. We are talking taxes, statutory, SEC reporting and staying on top of new accounting standards.
The best finance teams; 1) meet or exceed deadlines, 2) are accurate and 3) have developed significant expertise in changing regulatory environments.
But these are the minimum standards of excellence. How about developing strategies to reduce taxes or structuring contracts in such a way that benefits the organization but also meets compliance requirements? This builds shareholder value for your company.
Your tax preparer completes your taxes accurately, timely and correctly. That’s a good tax preparer right? But my tax preparer does the same thing and also identifies strategic opportunities to save money on taxes by rolling over asset sale gains or contributing to an IRA at year-end. Which would you rather have? One does the job the other saves me money.
Don’t just settle for your basic compliance needs to be covered. Expect your finance team to actively build shareholder value, and challenge them to do it.
2. Partnering with Operations
A lot of times we forget that operations is the customer. The very best companies partner with their operations and arrive at solutions and products before the customer asks for them.
Your finance team is in a unique position to explicitly understand the true challenges and needs of your customer. After all, they are in the same building and usually right across the hall. And they will be completely transparent about their biggest challenges. Perhaps you can help them – but you need to ask.
But, they don’t always have access to the details that your team sees, and can always use some help becoming more efficient and profitable. What if margins are being squeezed because of some arbitrary vendor increase? Would it help them if you presented a spreadsheet identifying gross margin by customer? They can then identify those customers providing a drag on their earnings. Or, how about cheaper vendor alternatives?
With this knowledge, maybe they can renegotiate customer contracts or adjust some other service to get margins in line. Or simply exit this contract at expiration if it cannot be made profitable.
How about establishing some sort of return on investment by marketing channel? Would your customer like to know which channel provides the biggest bang for their buck? Of course they would!
Value can also be added by an AP processor. One product line has a lot of visitors from out of state and they stay at the hotels of their choice. My AP resource calculated the total stays and cost and then reached out to a nice local hotel and obtained a volume discount. Not only did it save money to the product line, visitors didn’t have to search for places to stay – and breakfast was included.
Your finance team should always operate to satisfy their customer. If they do a poor job then the customer should be free to outsource to another vendor just like any other dissatisfied customer. This is the incentive that works for most vendors.
The golden rule is that new value needs to be provided constantly and the customer should be considered a partner.
3. Leading with Metrics and Accountability
World-class finance teams effectively lead the organization towards their vision. By providing transparency, these teams hold operations and individuals accountable for their results.
This is not a negative thing at all. Failing to meet sales targets will require a deeper analysis on the cause. Is your marketing plan stale, are the inside sales team capable or is the product competitive with some of the new entrants in the market? These are important answers to have and you only get them when you ask the right questions.
Too many times targets are allowed to slip until one day you realize there is a major problem. I believe you deal with issues today before they become really big.
One of the best tools of all is a metric dashboard. These are frequently used by SAAS companies and every company should use them. Everybody needs to know their customer acquisition costs (CAC) or lifetime value of a typical customer (LVTC).
You can develop specific metrics for your business but you need to ensure that it is relevant. Wells Fargo paid $575 million in fines for opening up millions of fraudulent consumer accounts. Would they have had the same issue if the metric were dollars instead of new customer accounts?
Goals need to be SMART (Specific, Measurable, Attainable, Realistic and Time-phased) and everybody needs to buy into them. Your finance team is the gatekeeper of information and is the major player to keep everybody on point towards these goals. There needs to be specific reasons why a goal was not met and a remediation plan put in place.
Similar to a driving school trainer providing constant feedback to a new driver while driving, your finance team can shape accountability and lead your organization in real time. Don’t expect anything less than results. This establishes a culture of accountability and is required to get everybody on the same page.
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