Streamlining Financial Processes for Growth

Finance departments under pressure during rapid growth may feel tempted to hire more staff for a quick fix. In truth, this usually doesn't fix the main problems with a company's financial processes. In fact, it can cause a cash flow crisis.

Hiring is also expensive and time-consuming. The company must hire, train, and onboard employees. If they are not a good fit, the organisation has to start the process over. For large and small businesses alike, this can significantly hinder productivity and cause an imbalance in cash flow.

Here are some tips to simplify financial planning processes during rapid growth and support business expansion.

Finance requires a fine balance

Finance departments are ultimately responsible for the cash flow of the entire organisation. They monitor all incomings and outgoings, which is usually simple enough for a stable and consistent business.

However, in periods of rapid growth, the quantity and value of invoices will increase. Businesses may not know about these changes until they receive the invoices. The changes won't show up in accounting and cash flow until they have been processed and approved.

An increase in invoices leads to increased pressure on the finance team. Getting the new higher volume of invoices into the accounts system becomes the priority, cutting the time usually spent on other important tasks.

More invoices mean that the team will also begin receiving more queries, whether from budget holders or suppliers who require payment. The finance team will take an increasing amount of time to respond. Eventually, other departments may simply stop asking finance teams for approval or advice as they lose faith in getting a response.

This can create a “better to ask forgiveness than permission” culture, adding more dangerous instability to an already taxed department. If the finance team only discovers a new expense within a few days of the invoice being due, they are not staying ahead of the game.

Without accurate and early information, the department cannot best serve a growing company’s needs. Many leaders assume that hiring more staff will solve this problem, but they fail to see the root of the issue. By this point, someone has broken the financial process. Additional capacity and team members will only replicate a cycle that endangers the stability of the business.

Supplier relationships at risk

When finance departments begin to struggle, relationships with suppliers often break down. As cash flow tightens, finance teams push supplier payments, as attempting to renegotiate the terms often feels like the easiest option. Unsurprisingly, most suppliers do not relish extending payment dates because it increases their financial risk. Clients that cannot pay on time begin to be viewed with distrust and subsequently receive tighter credit limits and harsh payment terms. If this happens to a critical relationship, the impact could be felt throughout the entire business.

The easiest way to maintain a healthy relationship with suppliers is to pay them on time. Better yet, spend more money while continuing to pay on time. If a company can, they are in a more powerful position to positively affect the terms of the contract when negotiating new pricing or delivery terms. This is impossible when a finance team is burdened to the point of consistently failing to send payments on time.

Areas to address

The first step of streamlining financial processes is to transfer more responsibility and accountability to budget holders outside the finance department. The best way to do this is to automate the purchasing process.

When budget holders and senior leadership have a real-time view of cash flow and the financial situation, they can better allocate their departmental or project budgets and resources. Whenever they need to buy something or bring in another resource, they will know exactly what effect that has on the entire system.

This is far better than merely requesting funds on demand from the finance department. They are now empowered to plan and manage their own spending because they have been provided with the tools to achieve this and can make informed decisions. The company will experience cost and time savings in every department, and accountability for spending decisions will increase too.

Education is key to achieving financial health within a business. Senior staff should understand the ongoing process of what a necessary monetary commitment is and what it isn’t—setting guidelines for spending, along with having rigorous real-time controls in place for risk tolerance. That will give the finance team time to handle the other duties and keep operations running smoothly.

Another important step in optimising your financial management processes is to eliminate paper invoices. A detailed and digital view of all cash commitments shows efficiency and effectiveness. This means that supplier payments can be approved and sent quickly. The quicker suppliers receive these payments, the more positive the relationship will be.

Support sustainable growth

In finance departments, hiring more team members without automating or making any other changes to improve productivity will negatively impact the financial performance of the business. While growth and expansion should be part of any company’s plans, it must be done conscientiously and with a long-term strategy and business objectives in mind.

The first step to improving financial processes should always be to invest in current financial resources, increasing their efficiency and effectiveness. It is not a case of making the department more complicated or doubling down on sub-optimal processes.

Hiring and management need strategic planning to be future-proof. Identify areas for improvement. To protect your company and finance team, it is better to focus on effective delegation and implementation of new technology over making new hires.

About the Author

Neil Robertson is CEO of Compleat Software. A 39-year veteran of the financial software marketplace, Neil has a long track record of building disruptive startups into successful businesses, including his time as CEO EMEA of Great Plains where he built the business outside of the USA from 1995 - 2001.