Dada Adefolami:
“To ensure they continue to create value for the organisations, finance professionals must keep abreast of the multitude of changes impacting operation landscapes, from technological advances to the proliferation of consumer choice and new emerging industries and trends.”
Dada Adefolami.
SMEs shared common characteristics – a high level of entrepreneurial spirit, a clear vision, competent and committed team of staff. Another common trait is the key role played by the finance department in the success of the business. Many SME owners view supporting functions like finance as cost centres that add nothing to revenue, where any output simply increases operational costs. In fact, there are a number of ways in which the finance department and finance professionals can create value.
Take cash management and cost of borrowing. The finance department’s relationship with the company’s bankers often influences the interest rates it pays. Once the banker understands your business and has confidence in your company, you are likely to be able to negotiate a lower rate.
Good cash flow planning can help a company manage liquidity issues. Liquidity problems can be costly if poorly managed, as it is near impossible for a company to raise funds on very short notice at a reasonable cost. Many businesses fail because of inadequate cash flow, particularly when in expansionary mode. Finance professionals are also involved in inventory ageing analysis, product cycle analysis and sales strategies. Such analysis reflects the health of the inventory and helps prompt the necessary sales and marketing actions.
Smarter delivery of finance services is essential. There is already evidence that CFOs are placing a greater emphasis on their role in business strategy, imperatively finance function has the right operating model – agile, scalable and capable of meeting the changing needs of the organisation. The finance team must ensure the right processes, systems and metrics are in place to aid strategy execution, deliver richer information insights and drive cost and process effective finance operations’.
In procurement, the finance department can help negotiate improvements in terms and conditions, such as better payment milestones, or minimal non-delivery or late delivery risk. It also has a key part to play in tax planning. CFOs should be equipped with an entrepreneurial mind set to lead the business, strategic thinking to assist CEOs, and communication skills to articulate complex financial information, besides having core knowledge in accounting and finance,’
Finally, merger and acquisition deals will involve the company’s CFO.
CFOs control a centralised base of financial information in all organisations, and they have direct access to the board, top management, on-the-ground managers and shareholders. This puts them in an ideal position to make informed strategic decisions or to advise the board and the CEO in making them.
In order for finance professionals to perform this value-adding role, they must fulfill certain criteria. They must:
1. Be committed to their job and to the company
2. Be competent in both technical skills and operational knowledge
3. Be able to communicate to all levels of the business
4. Possess commercial sense – knowledge of the business, the market and the industry they operate in.
As a result of increased economic uncertainty, volatility and risk, the finance function of today must fully understand the business, its environment and factors that drive value and create growth opportunities.
Organisations of all sizes are seeing not only economic uncertainty but increased competition and disruption in the form of new market entrants and radically different business models. Senior Management / Board are looking for more and better information on which to plan a strategy in a world where they are forced to take more calculated risks and encourage innovation in their own organisation in order to drive growth.
Understanding how the business generates value is core to the future CFO’s role; in the push to drive sustainable return on enterprise assets, finance leaders need clarity on where growth will come from and where to allocate enterprise capital. But they can’t do this unless they get their hands on the right data. The CFO function has a critical future role to play in getting the enterprise data basics right as a starting point for better decision making.
To ensure they continue to create value for the organisations, finance professionals must keep abreast of the multitude of changes impacting operation landscapes, from technological advances to the proliferation of consumer choice and new emerging industries and trends. Also they must understand how much and when funds will be coming back from investments. It’s not just about outflow.
In budget forecasting, consider historical records: Use a good system of evaluating and collecting accounts receivable (to avoid bad debts).
Establish good communications with key executives within the company. This will enable you to grasp the cash flow needs of every department.
Establish a good relationship with your bank, be conservative and avoid high-risk investment.
Finance professionals will have a critical role to play in the near future. One feature of modern business is that the assets driving corporate wealth have changed in the knowledge economy; intangibles such as data, branding and talent have become central to value creation. This has a number of implications for the finance function. Finance function will have a critical role to play in getting the organisation’s basic data right as a starting point for better decision making.
As a finance professionals you most ask yourself , ‘What can I do differently, in order to drive future growth and value for the organisation?’, ‘How big a role will data play in creating future value?’ and How can the finance department be better placed to support the growth strategy of the organisation?
Written By: Dr. Dada Adefolami MBA, PhD, CPFAcct., Finance / Management Consultant
Certified Forensic Accountant. (Surajudada@yahoo.com; 08052043855).