5 Financial Indicators Your Company May Need A Finance Transformation

5 Financial Indicators Your Company May Need A Finance Transformation

The definition of a Finance Transformation varies across companies and industries. It can loosely be defined as a strategic initiative aimed at fundamentally changing how the Finance Function1 operates to achieve a significant improvement from current performance. The general goal of Finance Transformation is to align Finance with overall company strategy, to become more efficient, effective and provide better service to internal customers and external stakeholders. The economic benefits of executing a Finance Transformation can include increased operational leverage, greater insight into business operations and enhanced customer interactions.

Deciding when CFOs should consider Finance Transformation is difficult. It is never “just one thing” but a series of small paper cuts covered up with band-aids. Due to the rapidly changing business environment, more paper cuts quickly materialize. Soon the focus of the entire Finance Function becomes fixing and deploying new band-aids, impacting productivity and starving resources from the strategic, value-added activities that increase a company’s value.

The need for Finance Transformations is often demonstrated through the frustration of your accounting and finance staff (demonstrated through high-turnover and long hours) as well as the lack of quality reporting and analysis to drive executive decision making. The need for a Finance Transformation can also be triggered by an event, such as:

  • A Change in ownership transaction
  • A Recapitalization (E.g.: debt issuance)
  • An Initial Public Offering (IPO)
  • A Merger or Acquisition
  • A Divestiture
  • A Restructuring
  • An ERP or the implementation of another large-scale system

Finance Transformations initiated by an event are typically more complex and are required to be executed within an abbreviated time frame in order to achieve desired goals. Frequently, Companies undertake a Digital Transformation in conjunction with a Finance Transformation to increase ROI.

How Do I Know When The Time is Right?

To determine if your organization needs a Finance Transformation, you can combine the qualitative indicators above with the analysis of various quantitative metrics described in this blog series which can be compared to peers, and analyzed over time, to identify potential signals for change. This is not an exhaustive list and other qualitative and quantitative factors should be used to assess the need for a Finance Transformation.

If looking for peer data, an excellent source is APQC’s Open Standards Benchmarking® (OSB) service that allows an organization to upload their information and receive a customized report back. Using this database, industry-relevant data sources and its own historical financial performance, a company can gauge when, and if, a Finance Transformation would add value. A good source of budget and planning benchmarks can be found in the Association of Finance Professional’s FP&A Benchmark Survey and in assessing your FP&A function based on their FP&A Maturity model.

In a series of follow up articles coming over the next few weeks Ken describes 5 metrics that indicate a Company may be in need of Finance Transformation.

  1. Rapid Growth of Finance Function Expenses
  2. Financial Forecast Cycle Time
  3. Annual Budget Cycle Times
  4. Monthly Close Cycle Time
  5. Finance FTEs Per Set $ of Revenue

Individually, a variance from peers or an increasing/decreasing trend may not indicate the need for a Finance Transformation, but when combined with other qualitative factors it may become apparent to CFOs, Controllers, FP&A and other Finance leaders that a Finance Transformation would add significant value to an enterprise.

Read the first of Ken’s 5 part series on this topic starting here, Your Company Needs A Finance Transformation - Part I

Don’t Go It Alone

Planning and effectively executing a Finance Transformation is hard work. It requires executive buy-in, a careful assessment of a Company’s existing processes and procedures, the identification of pain points, gap analysis, prioritization of initiatives and program management. The ability for an existing resource to take this on in addition to their regular duties is a recipe for failure. Using an external partner to work in conjunction with an internal designate produces the optimal mix of internal knowledge and external resources to produce tangible results.

If your organization needs a Finance Transformation, there is no need to suffer through it. Contact me or Steve to help you through your journey.

1 your accounting, finance and treasury teams

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