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...
Variable Costs, Fixed Costs, Total Costs: How Do They Differ?
Nearly every business has both fixed and variable costs. To ensure that your business remains fiscally solvent and profitable, it is important to understand the different types of costs and how to manage them. In general, variable costs relate to the number of items...
Debt vs. Equity Financing: Which to Choose?
Every business needs financing to fund growth. The old adage is true: it takes money to make money. There are two basic types of business financing: debt and equity. Each has its advantages and its drawbacks, and over time most businesses will need both. Finding the...
Strategies for Improving Vendor Contracts
For businesses that are inventory-supported, such as retail, resale, or manufacturing businesses, strategic vendor contracts can greatly enhance your profitability and cash flow. For some companies, vendor contracts are a set-it-and-forget-it portion of the business....
Basics of Business Banking
Every business needs banking services so they can receive funds, pay bills, and finance large purchases. It may be tempting to just use your personal bank for your business needs. However, a business has much greater need to understand and carefully select its banking...
How to Determine Cost of Goods Sold (COGS)
What is Cost of Goods Sold (COGS)? Cost of Goods Sold is also known as COGS or Cost of Sales. It is a critical financial metric that indicates the direct cost of creating or acquiring the goods a company sells during a given time period. This figure helps companies...
7 Most Common Financial Mistakes Construction Companies Make
Strategic CFO, Bradford Pack, discusses the 7 most common financial challenges faced by construction companies. With long project times, sizable material orders, and upfront labor costs, the construction industry often faces a variety of financial challenges. Below...
Evaluating Your Company’s Financial Confidence
An axiom in business is that CEOs and founders must “know what they don’t know.” It’s rare that a CEO or founder has expertise in all arms of the business. Instead, they must rely on identifying their weaknesses and make strategic adjustments—usually by hiring someone...
How Does a CFO Add Value?
CFOs are high-level, strategic experts who optimize financial resources in a company while using those resources to achieve company goals more efficiently and effectively. Unlike bookkeepers, controllers, and accountants whose primary functions are rear-facing,...
5 Hiring Tips from a CFO That Will Save You Time & Money
When is the best time to make a new hire? Hiring too late can mean work (and clients) falling through the cracks; hiring too early can mean unnecessarily increasing your expenses. Payroll is one of the largest expenses a company will face, which makes the decision to...
10 Benefits of Hiring a Virtual CFO vs. an In-House CFO
When your organization decides it’s time to bring in a new chief financial officer, is it better to hire a virtual CFO or an in-house CFO? When many companies think of CFOs, they default to the expectation of a long-term hire requiring an office, six-figure salary,...
How to Determine How Much Your Business Is Worth
Business Valuation Methods & Determining What Your Business is Worth Whether you're preparing for a sale or acquisition, seeking debt or equity financing, or evaluating other strategic business decisions, it's helpful to have a good pulse on the value of your...
Understanding the 9 Core Traits and Qualities of a Successful CFO
As Preferred CFO performs speaking engagements and advisory with CEOs around the country, one of the topics we’re continually asked to address is how to evaluate the quality of a financial team. Among these is answering the question, “What makes a great CFO?” We’ve...
