Thanks to digital tools, many businesses have been growing rapidly, building efficient processes, making data-driven decisions, and increasing their profitability. While business workflows are becoming more streamlined, finance is one of the functions going through the most significant changes, and therefore finance teams will need to adapt.
Based on Gartner's research, the three most challenging tasks for CFOs in 2023 were identified as: talent acquisition and retention (54%); forecasting financial trends (36%); and identifying suitable costs to reduce (35%).
The most effective finance teams now focus on forward-looking analysis to generate strategic insights and opportunities, achieving the perfect balance between cost-cutting, risk management, and agility.
Forward-facing finance is a new approach that leverages real time financial data analysis and business intelligence, so that CFOs can make better decisions and support their company's growth. For finance leaders looking to modernise and solve their department’s biggest challenges, this new way of looking at finance can play a crucial role.
What is the modern finance function?
A key objective within modern finance is to streamline and automate routine/repetitive accounting tasks. This involves transforming the role of the finance department to have a broader impact across all organisational departments.
The focus of today's CFO has shifted from managing transactional activities to delivering strategic insights for better decision-making. Utilising Cloud-based accounting software enables businesses to automate their financial processes, providing clearer visibility into essential accounting procedures.
Forward-looking, automated data analysis
The modern finance function can dig deeper and gain a broader understanding of business processes and patterns. Finance teams can now focus on important strategic tasks such as cash flow management and forecasting market conditions. The automation of time-consuming manual processes has made it easier for teams to focus on what’s important.
Previously, most of the team’s efforts were focused on data collection. But through technological innovations such as artificial intelligence, they are able to analyse information and create useful insights. This transition has greatly improved their strategic impact.
For instance, with account reconciliations, the Cloud allows for detecting discrepancies via collection of information from all possible sources. It includes ERP systems, bank files, as well as bank statements. The finance team can then use their extra time to analyse the differences.
Real-time communications and cross-team collaboration
The role of the CFO has changed to be more collaborative. Thus, it is logical that finance teams collaborate more with other departments such as marketing and IT.
Building relationships between departments makes processes more efficient. This expanded collaboration gives finance professionals more influence in the organisation. By understanding the viewpoints of different teams, they can better contribute to wider decisions and business growth.
How this has changed compared to traditional finance functions
Here’s how the modern finance function changed compared to traditional finance:
Real-time data analysis: Modern finance leverages digital tools such as artificial intelligence (AI), machine learning (ML), and data analytics to collect and analyse financial data in real-time. This allows for more accurate budgeting, forecasting, and reporting. It reduces manual errors and enhances the speed and efficiency of financial operations.
Support of strategic financial decisions: Instead of merely recording and reporting past performance, modern finance uses predictive analytics and scenario analysis to support strategic decision-making. It helps businesses anticipate future trends and make proactive decisions.
Behavioural finance theories: Modern finance acknowledges that financial decisions are often influenced by human emotions and cognitive biases. It uses behavioural finance theories to understand and predict irregularities in financial markets that cannot be explained by traditional finance theories.
Strategic planning and holistic financial management: In contrast to traditional finance's focus on cost control and profit maximization, modern finance places greater emphasis on strategic planning and holistic financial management. It considers factors like sustainability, corporate social responsibility, and long-term business growth.
Utilization of technology for integrated enterprise planning: Modern finance uses advanced technologies like cloud computing and enterprise resource planning (ERP) systems for integrated business planning and budgeting. These technologies enable seamless data integration across different departments, leading to more coordinated and effective planning.
Hire and train employees: A modern finance skill set is crucial for a future-proof finance department, with the human factor being the fundamental element among people, processes, and technology. The perception of finance's role needs to be shifted from a support function to a system that implements the CEO's vision.
The change in mindset paves the way for finance leaders to assemble a team capable of supporting the entire organisation rather than merely producing financial reports and statements. Recruitment should be done based on initiative and a desire for improvement, rather than just basic knowledge. This approach will result in a team of high-performers who can contribute to a future-proof finance department.
It is important for companies to build an in-house finance team, particularly as a business grows and complexity. Companies often delay this process, which is a mistake. Investing earlier than anticipated in bringing the finance function in-house can lead to a finance department that acts as a strategic partner for the entire company.
The difference between backward-looking and forward-facing finance
Backward-looking finance:
- Conventional approach primarily involving reporting and assessing past data.
- Reactive rather than proactive in financial management.
- Focuses on ensuring regulatory compliance and risk management.
- Limitations include potential missed opportunities for cost savings, process improvements, and growth initiatives due to reliance on past data.
Forward-facing finance:
- Focuses on collecting real-time financial insights.
- Leverages data analysis to support strategic financial decisions.
- Utilizes continuous accounting to anticipate and address potential issues proactively.
- Adds value to the company through innovation, customer focus, and inter-departmental collaboration.
Why is this important for CFOs and their teams?
With a forward-facing finance function CFOs can always be one step ahead, enabling their organisation to be agile in an ever-changing business landscape. Here are some of the benefits they can gain from embracing this strategy:
Anticipate future challenges and opportunities
A forward-looking finance function will ensure the CFO can analyse both past performance and future projections, so they can be more certain of what is round the corner. With access to these insights, CFOs are better positioned to implement strategies that keep them up with competitors as well as industry trends.
Identify possible risks and uncertainties
CFOs are better equipped to navigate their organisation through the murky waters of the future, as this unknown becomes more known. This can include changing regulations, competitive pressures, or unprecedented events in the market/industry.
Forecast critical metrics
This new financial management approach enables CFOs to conduct better financial forecasting around critical metrics such as revenue, expenses, cash flow, and profit margins. The projections around these KPIs will help them make informed decisions about budgeting, investments, and other decisions that could impact the company’s financial health.
A proactive approach to financial management
Instead of reacting to events as they happen, CFOs can be prepared for the most likely outcome at any given time by leveraging scenario planning tools. This proactiveness further helps the business to pivot quickly in response to shifting market dynamics and customer needs.
How to structure a future-proofed modern finance department
The finance team is tasked with tracking how well the business is doing, by analysing historical data, forecasting opportunities, evaluating risks, and providing actionable insights.
But there is also a burden on the finance function, to accelerate organisational growth rather than just monitoring how things are going now. Therefore, there must be a framework and scalable solutions to accomplish this goal.
The more finance metrics are analysed, the better the insights they can offer to business partners and other key stakeholders who could help them to make informed strategic decisions. Therefore, CFOs who want to create a finance function of the future should be technology and strategy oriented.
The pandemic accelerated the need for digital transformation and the momentum has remained even now, with many still striving for greater operational efficiency and a competitive advantage. The role of the CFO essentially changed overnight to meet new business demands.
Forecasting, cash flow management, data analysis, accounting fundamentals, risk management, and compliance are some of the skills CEOs expect from their CFO today. Here are some of the other tasks CFOs will need to prioritise if they are to succeed over the coming years:
Review what changes are necessary
It takes clear knowledge of where you are, what you're doing right, and what you need to change in order to build a modern finance function that is more successful and value-driven.
CFOs should assess what changes are necessary to shift finance further into value creation and organisation support. This includes addressing challenges associated with making these changes along with the required resources and business processes to make them happen.
Embrace digital transformation
To address the opportunities and disruptors that define business today, you need access to tools and technologies that transform big data into actionable insights, optimised business processes, and profitability.
Your finance department has a direct impact on every part of your business. Everything else in the business depends on a well-organised finance department, from obtaining essential raw materials and finished goods to securing funding sources for strategic goals like capital investments.
In the Cloud, data analytics and metrics can reveal new opportunities for supply chain optimisation, asset allocation, and strategic development, turning key suppliers into trusted business partners.
Facilitate modern finance strategies
The finance managers of tomorrow will need to have a wide range of versatile skills across business units as well as strong human resource and conflict resolution skills, and an overarching understanding of business strategy.
For the finance function to adopt new roles and skills, you must offer both support and instruction. Consider empowering your finance staff with ongoing education in financial management and skills training.
Automating financial planning and forecasting will free up your team's time and talents to focus on more strategically valuable tasks. Your company's financial performance data can help you improve your balance sheet, guide new business decisions, and inform new business strategies, so be sure they have the expertise and tools to leverage analytics effectively.
Consider the skills your department needs
Here are some of the skills employees will need to focus on if they’re to thrive in the finance team of today (and tomorrow):
Customer-centric focus
A forward-looking finance function will prioritise the needs and expectations of customers in all financial decisions. For example, they could utilise new digital platforms to facilitate speedier customer outcomes or change prices/service packages to better meet their needs.
Agility
A forward-facing finance department is adaptable and responsive to the changing needs of the business. It can rapidly adapt to new technologies, practices, and business models to continue being ever-more valuable to the organisation.
Data driven
Such a finance team will rely on data-driven decision-making, employing advanced analytics and reporting tools to obtain real-time financial data and insights. They’ll dive deep into these insights to uncover the company’s strengths and weaknesses.
Innovation
They should constantly be on the lookout for new innovations and best practices to improve efficiency/value. This could involve utilising cutting-edge technologies such as blockchain and AI to accelerate financial operations and make better decisions.
Strategy
The modern finance team will be strategic, providing analysis and advice to help the organisation move in the right direction. Examples could include making long-term financial plans, looking for ways to expand, and assisting with mergers/acquisitions.
New opportunities and challenges for forward-facing CFOs
Finance leaders have always had responsibility over financial success, but during turbulent economic times 53% of CFOs state they wish they had greater agility for better operational resilience. While this necessity brings opportunities for CFOs, there are a few challenges they should be aware of too.
Opportunities
- Leveraging new technologies: CFOs get an opportunity to leverage emerging technologies such as Artificial Intelligence, Machine Learning, and data analytics to improve the accuracy of data and projections.
- Automation: With certain digital tools, CFOs can automate mundane financial processes and, in turn, streamline operations and improve efficiency.
- Informed financial strategy: Finance leaders are better positioned to build effective strategies, using real-time financial data as a foundation for this strategic decision-making.
- Broader contribution: This modern approach gives CFOs the time and confidence to participate in broader strategic elements, such as technological investments or further expansion opportunities.
- Collaboration: Forward-facing financial management helps CFOs to develop cross-functional collaboration skills, and to work more closely with other business leaders within their organisation to drive growth in a cohesive manner.
Challenges
- Data management: Tracking and analysing a large amount of financial data can be challenging, especially with the increasing complexity of financial regulations and reporting requirements.
- Talent management: Given the rapid evolution of technology, CFOs may find it challenging to build and retain a team with the required knowledge/skills for a forward-facing finance function.
- Cybersecurity: With financial operations becoming more digital, they must also protect sensitive financial data from cyber threats.
- Complex change management: Putting new digital solutions in place will demand significant organisational change, which will likely attract resistance.
Continuing to look ahead
In this challenging climate, CFOs can only be successful by embracing innovation and forward-thinking financial management. Our annual Business Trends Report highlighted that 33% of companies see Cloud adoption as a main priority over the next 12 months. This goes to show that there’s a lot of room for more leaders to embrace this technology as a key element of their future gameplan.
Cloud technology has a crucial role to play in facilitating the forward-facing finance function. With the Cloud, finance departments can store, access, and process vast amounts of data in real time. This allows finance leaders to tap into insights that are more accurate and current.
OneAdvanced's Financials is a cloud-based accounting software that enables your finance team to proactively traverse the future business landscape. With automation, powerful reporting, and strategic insights, they can become a truly forward-facing function.