One of the questions you should ask in your organisation is “what do you see as the role of your finance function?”  Are they there to count the beans or help you influence the commercial outcomes of your business?

There are generally three core functions of a finance team – compliance, reporting and commercial management.

The compliance function ensures that you comply with financial reporting, taxation and SOX requirements. This doesn’t add much value but is a necessary process in building trust with your external stakeholders. If you don’t have quality and reliability in this function you can erode trust.  However don’t let the tail wag the dog in this space and remember that the compliance team perform an important role but they don’t drive business outcomes.  They often drag other arms of finance or the business into the compliance space which you need to be on top of.

The reporting function ensures your managers have information and data to help them manage the business.  They manage the budgeting and the forecasting process, and they manage the monthly management reporting process.  These guys play an important role but there are a couple of things to be careful of.

  • Firstly ensure that your reporting function has a forward looking view (not historical).  Too many finance reporting focuses on where we have been and doesn’t spend enough focus on where we are heading.  It is very much like driving your car through your rear vision mirror. Sure keep your monthly cost reviews in place, but ensure you also include quarterly reviews of your 90 day plans, annual forecast, and your 5 year plan.
  • Secondly be careful that your line managers are discharging their responsibilities to manage costs.  The finance team should not be managing your costs but your line managers should own their budgets and own their spend.  Don’t ask your finance guys to explain the monthly spend or the forecast, but rather ask the line manager responsible.  If they don’t know the answers then expect them to get themselves educated and informed.

The third pillar is the commercial arm of finance.  This is often overlooked as it is not mandatory, but if done well it is where all the value sits.  This function should ideally not report to the CFO as they are not there to ensure accurate and reliability reporting but rather are there to assist management to improve cash flow and profitability.  They should report through to line management. If they report to finance they will get dragged into compliance and processing related activities which erodes their value.  This function should lead management in understanding cost drivers, facilitating management to regularly review budget and forecast assumptions, managing the capital works plans, participating in monthly contract reviews to ensure you receive value for money, performing business analysis on short term and long term projects and initiatives, facilitating monthly cost reviews, and playing a leadership role in developing the cost culture of the business.

There are three very distinct personalities of people that are attracted to the various arms of the finance function described above.  To some degree the influence of these personalities can skew which direction your finance team takes.  Those who are most comfortable with tasks will skew towards the compliance side of things, those who are more systematic and process orientated will skew it towards the reporting side of things, and those who are more relationship and outcome focused will skew it towards the commercial arm.  Hence, it is critical to getting the best out of your finance function is ensuring you have the right structure with the right people in the right roles.