How often do you reevaluate your financial management system? For most organizations, the answer is not very often. After all, the ultimate point of a financial system is to put it in place, then rely on it and the people who contribute to it to help things run smoothly without having to worry about which system powers it.
Sometimes, however, an upgrade is in order and can be a huge benefit to you, your team, and your company. If people are the gears and life force of a company, financial systems are the nuts and bolts that keep everything working effectively together.
Financial systems aren’t just about making sure money is properly tracked. The right system monitors company resources, supports daily and long-term organizational activities, provides insights for improvements in productivity and profitability, and empowers key players with the information they need to make decisions about the organization.
As with any team or system within a company, there are times when growth or roadblocks signal a need for improvement. These changes help realign the existing team or system with current resources, short- and long-term goals, and current or anticipated needs.
What does the right financial system look like?
Every company’s needs are different, so there’s no magical formula for the perfect financial system. The best financial system for your company is one that provides the following:
1. Makes efficient use of your financial team
When you have the right financial system in place, you’re able to maximize your current financial team’s talents and time. The right financial system will support your financial team, not hinder them.
2. Financial resources are being used effectively
The right financial system for your company will also provide information and support systems that allow you to make sure your financial resources—from cash or costs to employee efficacy—are being used in the most effective ways.
3. You’re able to fulfill your financial commitments
Are you able to pay vendors and payroll without hassle, or do your invoices or financial commitments tend to fall through the cracks? The right financial system for your company provides a streamlined process to stay up-to-date on your bills and invoices.
4. Your system is error-free and integrates with other systems
Financials are the road map from where you’ve been to where you are going. Your financial system should provide you accurate information from which to make important business decisions.
Since most errors (and inefficient use of team members) come when numbers have to be manually entered—or worse, re-entered into multiple systems, it’s important to implement a financial system that automates processes between multiple systems.
5. Provides accountability for internal organizational efforts
It’s difficult to make educated business decisions without metrics. The right financial system for your organization will provide you and key team members the information needed to quickly assess the health of the company, the efficiency of each department, and the productivity of production, service, or support systems.
6. Funding agencies and partners have confidence in you
Organization stakeholders such as funding agencies, partners, stockholders, or board members, need to see clear, error-free records and reasonable forecasts from the companies with whom they do business. Without clear records accurate and trustworthy information it is difficult to get the funding or support you need to help your company grow.
7. You’re never in the dark about your financials
When the right financial system is in place, you always have a clear and accurate view of your financials and are never left wondering where money is coming from or where it is going.
Do you have big dreams? Know where you’re going and how to get there.
If you’re not reaping the above benefits, then you and your team may be missing out on opportunities to streamline your processes, increase productivity, and harness your profitability.
When we discuss financial system upgrades with our clients, we’re not only looking at your current financials state; we’re also looking at your future goals and how to design a system that will help support you through the growth to achieve them.
You’ve probably heard the mindset of designing the team now that you need to achieve your goals in the future. Financial systems are no exception. When an organization is slightly ahead of the financial system upgrades they’ll require during growth (as opposed to waiting to upgrade when systems are overwhelmed by new or more complex data), they’re in a better position to support and sustain growth.
Take a look at your current financial system compared to the financial system you will need when you achieve your future goals. What are the gaps? After you assess the gaps, you’re in a better position to determine which system improvements can be prioritized now to better support growth in the future, and which can (or should) wait until you’re closer to the goalpost.
5 signs you may want to reassess your financial systems
If your company is experiencing any of the following, you may want to take the time to reassess your financial systems.
1. You’re adding complexity to your organization
If you’re adding new products, services, entering new markets, or doing more with your organization, it’s probably a good time to assess your financial system. Some of the most important knowledge in business growth and development is knowing where money is coming from, where it is going, and which systems can be improved to streamline efficiency. Make sure your financial system is up to the task of providing you this data in a reliable way.
2. You don’t have the information you need when you need it
Finances are one of the biggest drivers for key company decisions. Without the empowerment of up-to-date, accurate information, you’re held up in the decision-making process or, worse, make the wrong decision by compromising on the contributing data needed to make it.
Strategic management decisions may include assessing your services or products, altering price points, evaluating the cost of materials or services, changing service hours, increasing productivity, optimizing staffing patterns, reducing costs, projecting future costs, managing risks, etc.
If you find yourself asking questions that can’t be answered in a timely manner (or at all), it may be time for a financial system upgrade.
3. Your systems don’t talk to each other
The biggest risk for error comes with manual entry, especially if your team has to enter the same information in more than one place. This is especially true if your organization relies on multiple spreadsheets outside your automated financial system to help track things. While spreadsheets have a time and place for forecasting and analyzing, they are often inefficient and error-ridden as a means for managing finances.
Your financial information will be more accurate the more automation you have in place. The more complex your organization, the more imperative system integration becomes.
4. You’re experiencing industry developments
Sometimes laws and regulations may change the way you need to manage your finances. For example, what data needs to be provided to whom? Are there laws or regulations in place that necessitate better transparency or accountability for funds? Are there restrictions in place that increase the need for budget control?
5. Financial team and system efficiency/cost management
We’ve probably all experienced the bookkeeper who has so much on his or her plate that you either have to hire another person to support the work or risk the books (or worse, bills and payroll) falling increasingly behind. If you keep “throwing bodies” at the problem—that is, adding team members to support your financial team when you don’t necessarily have the budget to do so—it may be time to reassess your financial system.
Avoid the pitfalls of system upgrades
Sometimes it may feel overwhelming to consider a financial system upgrade. We’ve often heard it described as rebuilding an airplane engine mid-flight. How do you implement a new system without stalling current progress and while minimizing the learning curve?
With the right planning, vendor selection, transition management, training and support, the integration of a new financial system can be smooth and seamless. And the ultimate result—a better opportunity for efficiency, productivity, and efficacy—empowers your business for more sustainable success.
About the Author
Troy Skabelund
Partner in Residence
Troy Skabelund has over 20 years experience as a CFO and Systems Expert for organizations of all sizes and industries, including 12 years at the Walt Disney Company. He specializes in analyzing and designing financial systems with experience in both proprietary and 3rd party solutions.
You may also be interested in...
Why You Should Consider A Lower Initial Valuation
I recently read an interesting post at entrepreneur.com arguing the down side of a mega valuation when raising initial capital. During the read, I quickly recognized that the author was a venture capitalist himself. Despite my recognition of the inherent conflict of...
Creating the Perfect Pitch – The Engaging Pitch
I hope that you all had a chance to participate at the UVEF Hot Seat: Perfect Pitch event in April. In case you missed it, I felt that Preferred CFO had an obligation to its friends and contacts to share some of the wisdom shared at the event. John Pilmer of Pilmer...
Ratios, Relationship, and Reports – The Three R’s to Successfully Working with a Bank
Far too many business owners ask themselves, “What’s the bare minimum that I need to do to borrow money from a bank?” If you’re one of those people, please stop that train of thought right there. Instead, you should be viewing your bank, or any lender for that matter,...
Outsourcing Your CFO Function, or Outsourcing Your Laundry?
Running around all the time while being busy with work has left me recently wishing I had a better diet. There’s just not enough time to be busy and eat well it seems. Being the problem-solver that I am, it got me thinking about the issue and a potential outsourced...
The Five Don’ts of Venture Funding
A few weeks ago I opened up the discussion of venture funding. Yes, that black box of enigmatic Pandora proportions that many attempt to open but few are successful. If you’re reading this article, then you’ve likely decided that raising funding is in your future. ...
When Should I Raise Money Part 1
by Dave Sherwin This week I was approached by a friend with that series of questions that every entrepreneur faces at one point or another, “Should I entertain raising investment money for my business idea? And if I do, what are some things I should be aware of and...
8 Tips for Valuable Cash Projections: Avoiding the Situation that Sinks too Many Companies
Part 2 of 3: Critical Contract CFO Components Most Small Businesses are Missing A cash flow projection infuses life into the static numbers of your budget by inserting in the element that moves most, cash. A cash projection is an ever-changing picture of the moments...
7 Ways Budget to Actual Comparing Saves Businesses, Marriages, and Could Have Saved the Government
Part 1 of 3: Critical Contract CFO Components Most Small Businesses are Missing Quite literally, budgeting saves things. But what is most critical for meaningful results is that the budget process is more than just whimsically concocting a budget as you would a...
Accrual Basis – A CFO for Hire’s Secret Weapon
CFO for Hire Secret Weapon -- Accrual Basis Accounting vs a Tax Accountant’s Cash Basis You’ve probably already found out as a business owner that accounting can be complex. This article will break down the value of a CFO for Hire from the perspective of accrual vs...
How do I find a bookkeeper for my business? Or should I hire an accountant?
How do I find a bookkeeper for my growing business? Should I just hire an accountant? Bookkeeper vs Accountant While these questions seem related, interestingly enough, they aren’t as much as you think. Hiring a bookkeeper does not replace the need for an accountant,...
Accounting Help for Non Profit Organizations: Cash Flow & The Not for Profit Misnomer
Cash flow is the number one problem and concern that non-profits face with their finances. In this article we’ll hit on a core philosophical change that must occur in order to fix cash flow problems, and provide accounting help for non profit organizations. Too many...
Do Small Businesses Need a CFO?
Your initial instinct is that a CFO at a $200,000 per year salary isn’t relevant for your small business. And I would agree with you. But before we stop there, let’s consider what a chief financial officer does, or their major responsibilities so we can understand...
