top of page

How Embracing Strategic Finance Builds a Better Bedrock for Your Company

By Kendall and Sharon Hoyd

Too often, closely held companies with active owner involvement begin to sputter when the company goes into growth mode or the owner wants to spend less time on day-to-day issues. This is often because employees lose sight of high-level objectives. This leads to destabilization—a lack of alignment between business functions. It’s often characterized by the rise of more than one version of the “truth” regarding what good performance means and what is the best path forward when key decisions need to be made. Top people in the company begin pursuing their own plans that aren’t tightly aligned with the company’s overall objectives.

This lack of alignment is inefficient at best and, in more serious cases, can cause harmful underperformance that will result in lost customers. But there’s a way your finance and accounting department can help prevent such destabilization, keeping the company growing profitably without owners’ constant, direct involvement. This can happen if you have a finance and accounting function that contributes at the strategic level.

Over the next few essays, we’ll talk about what Strategic Finance can do for you. Let’s start here with a summary of some of its key elements.


1. At least Stage 4 financial reporting. In an upcoming post, we’ll discuss Stages 1 through 5 in financial reporting, and how better financial reporting performance helps stabilize companies by establishing a single version of the “truth.” This forms the platform for profitable growth and less required owner involvement in daily operations. One thing that becomes clear is that for financial reporting to convey the “truth” it needs to report on more than just the revenues and expenses.


2. A digital environment. If the processes by which you purchase, sell, create, deliver, and communicate with the field are not fully digital, automated workflows, then you are leaving money on the table in two important ways. First, you are likely spending 25% to 35% more to run the overhead aspects of your company than you should be. Second, you are missing out on the ability to deliver items 4 and 5 in this list for little to no incremental cost or overhead. This digital environment inevitably intersects with your financial system in multiple mission-critical ways, so in most companies it is up to the finance and accounting function to take the lead with the digital transformation.


3. A meaningful Financial Plan. It may surprise you how much you can learn about your business in the process of building a well-constructed financial model of it. The model is the record of management’s knowledge and assumptions about how the company will perform financially given changes in key input variables such as volume, margin, productivity, inventory levels, etc. A meaningful financial plan captures and projects the key performance indicators that show how well the company is operating and becomes something crucial in financial management – a record of “what we think will happen.”


4. Financial Analysis: Comparing the “what we think will happen” financial plan with the Stage 4 (or higher) financials showing “what actually did happen” accomplishes two key things. First, you can validate or, if necessary, correct your understanding of how the business performs when key

variables change. Second, your management team will develop a single version of the truth about how the company operates and what drives results, reducing the risk of destabilization.


5. Pricing Analysis: A company that operates in a digital environment and has the pieces from 1 -4 above in place can develop a tool we call Pricing Analysis. With the right understanding of how much of your production resources are consumed by different products, services and customers, and how those resources perform under various demands, you can gain a better understanding of where the company makes money and where profit is left on the table. Knowing this allows you to adjust your pricing, sales, marketing, and product strategies accordingly.

Strategic Finance is what you get when the boundaries of your finance and accounting function are no longer defined by debits, credits, audits, taxes and a basic P&L. Your Strategic Finance function will interact constantly with your operations, your business planning, and your strategy to make sure your management team makes decisions that are supported by facts and that they all have a common version of what the facts are. As the world around your business evolves, you will be making adjustments in real-time that keep your business operating at above-average profitability with below-average stress.


Think Strategically,

Kendall Hoyd and Sharon Hoyd



7 views0 comments

Recent Posts

See All

コメント


bottom of page