Optimize Your Finance Department Structure the Right Way to Gain Business Insights

One of the things I often hear when talking to entrepreneurs about their financials is that their accountant is amazing. 

However, when I dig into their financials, I find out that it is next to impossible to get any true insights into their business, especially if you ask simple questions such as “Are you allocating enough to sales and marketing?”, or “Will you run into any short term cash issues?”. 

The reporting of your financials may not be organized in a way to answer such questions. The reason is that many accountants are primarily focused on ensuring your financials are in good working order as it relates to you being able to file your tax returns. A CFO, on the other hand, is focused on ensuring that your financials give you strategic insights into your business. 

In order to be able to obtain crucial business insights, you need to ensure that you have a solid Finance Department Structure, as well as a Financial Planning and Analysis group that is dedicated to coming up with business insights. 

Accounting Infrastructure:

The first part of having a solid Finance Department Structure group is ensuring that your accounting practice is in great shape. This will ensure that you are paying your bills, collecting cash, paying your employees, preparing for taxes and all of the other critical components to keeping your business running.     

  • The Foundation: Accounting ensures that all of the key components of the finances are properly recorded. It includes having solid systems in place for all aspects of your Finance Department Structure including accounts payable, accounts receivable, payroll, invoicing, taxes, and accounting.
  • Rearview Mirror: Another way to think about accounting is that it relates to recording transactions that have already been made. It does not give you any insights into what the future will hold.
  • Critical for Financial Planning & Analysis: In order to have a solid understanding of the future it is imperative that you have solid data to analyze. Having a strong accounting practice ensures that your data is accurate and well organized.

Financial Planning and Analysis:

This entails assembling the tools to help predict what you can do in the future, as well as what steps to take based on these insights. This analytical process supports the organization’s financial health and business strategy in the long run. Three of the most important components to Financial Planning and Analysis or FP&A are:

Icon of a calendar for annual budgeting, in order to get a solid finance department structure
  • Annual Budgeting: In my opinion, what businesses actually spend their money on is what they determine is important. For example, if you say that you want to grow your business, but do not spend any money on sales and marketing, your actions show that growth is not really that important to you. By going through an annual budgeting process, you are able to strategically determine what is important to you and ensure that you are allocating funds to these areas.
Drawing of a dollar bill, representing the highest return of investment
  • Forecasting: As the year goes on, you will have more data as it relates to your financial performance for the year. For example, after a few months go by you should have a better assessment on if you will achieve your revenue goal for the year versus when you did your annual budgeting. Additionally, you might identify that some investments are performing better than expected and others are underperforming. By regularly forecasting your revenue and expenses, you can ensure that you are allocating your funds to the area that will generate the highest return.
Hand giving coins, illustrating cash flow on finance department
  • Cash Flow Analysis: Regardless of the industry you are in or the size of your business, cash will always be king. It is beyond critical to understand your cash position at all times, as well as identify if there are any concerns coming up. By having regular cash flow analysis, you can determine if you need an infusion of cash or to curtail expenses to ensure that you do not run into a dangerous position for your business.

If you are looking to grow your business, it is critical to have a solid Finance Department Structure and Accounting Foundation. You not only need to ensure that the key components to your accounting are operating effectively so that you are collecting cash and paying bills, but also that you have strategic insights into the future so that you can ensure you are allocating your budget to the area that will generate the highest ROI possible.