For many SMEs, the term ‘finance function’ will refer simply to a team of one or two people responsible for book keeping and client invoicing. Yet detailed studies by the ACCA show that developing the role of the finance department can transform company performance and help leverage significant growth. Here, Fazeela Gopalani, Head of Education, Middle East, ACCA, looks at the latent resource on your doorstep…

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First things first. This article was written with a two-fold function:

  • To examine some real-life examples of how the finance function in high-growth businesses has evolved, using the findings of eight case studies, and looking at the lessons they have for SMEs and larger companies
  • To translate that learning into useful points of guidance that high-potential businesses can implement to harness and develop the full role of their own finance function

Note that for the ACCA, the term ‘finance function’ refers to the broader application of the finance role in a business, shifting from being a book keeping and processing service to a role more akin to that of a business adviser and, indeed, a key partner to the business as a whole.

In our work with high growth companies, we found that how businesses understand the role of the finance function varies greatly as they go through different stages of their life cycles. In most cases, the finance function initially fulfilled its traditional accounting and book keeping role, but over time it evolved to a more strategic dimension as each business grew and diversified. The style of this evolution varied between the companies, in some cases occurring organically as a reaction to high growth, and in others being planned and directed in anticipation of growth. All of which indicates that there is no one-size-fits-all way in which the finance function can be understood – this very much depends on the nature of the business, and the way in which the remit of the business itself evolves and diversifies over time.

The role of the CFO is key

Our work with high growth businesses and the case studies we have carried underscores the vital role of the CFO and, in particular, that this role can best be harnessed to its full potential if other teams across the company recognise its value, and are educated in integrating aspects of the finance function into their day-to-day work.

At some point in their lifecycle, all the businesses we studied demonstrated that there was an ‘innovative turn’ involved in high growth, driven by strategic internal decisions to enter new markets, acquiring technical expertise that enabled the development of new products, or responding directly to external stimuli such as consumer demand for new technologies.

So in short, volatile growth came about through disruptive factors, not so much from organic growth or accrual of new business over long timeframes. The CFO can be a key factor in initiating and directing this dramatic process of development.

Managing the consequent risks

Often, this expansion entailed diversifying into new products and/or services, which carried with it critical risks. These included –

  • Insufficient staff capacity to respond to new workloads
  • Increased processes and business ‘traffic’ such as simultaneous deals
  • Entering new, very competitive and/or politically unstable markets
  • Being very reactive operationally, meaning that processes were not as smooth as previously.

Of course, by its nature, disruptive change and progress brings risks. These will vary according to the risk appetite of the business. Key lessons for mitigating these risks and managing high growth included –

  • Investing in new talent to meet the challenges of the new markets and diversified business streams
  • Implementing new methodologies for managing change proactively
  • Closely monitoring growth and developing robust systems of control to ensure that it didn’t spiral beyond the company’s capacity
  • Harnessing the capacity of the finance function not only to manage cash flows and create a safety net to boost the business’s reserves, but also to analyse and plan future trends to maintain growth.

Our studies demonstrate a clear symbiosis between business growth and the evolution of the finance function. The remit of the latter was almost always found to extend beyond operational tasks and processes during – and especially after – periods of high growth, often becoming a strategic business partner in itself driving this growth. In fact, the finance function and business growth could symbiotically support each other, accelerating growth while developing the role of the finance function.

Having the right people is key

To enable the finance function to initiate, enable and manage high growth optimally, learning from the case studies suggests that having the right people and leadership in place is key, such as investing in creating a CFO role if one wasn’t in place before the growth. If the growth threatens to be overwhelming, the finance function can be used to keep the supply chain alive by giving finance the authority to slow down new business where necessary, as determined by its knowledge of the cash flow and projections. The finance function is also vital for regularly collecting and analysing how the business is ‘trending’ in real time, presenting this data in an easily digestible format to management.

Aligning departments

The alignment of the finance function leadership with that of other parts of the company also proved crucial, especially for filling key skills gaps that impeded keeping up with the company’s growth, such as a lack of effective support to the ‘multi-challenge’ nature of high growth, and difficulty with communicating financial information in easily digestible ways. In response, the CFOs and financial controllers in the companies we studied often instigated coaching programmes for staff and management, both to boost vital skills and to adapt to new, more efficient ways of undertaking and managing finance tasks. This also involved careful attention to performance management and, where necessary, making a strong business case for the implementation of new systems.

As part of its evolution to a key business partner in most of the high-growth businesses studied, the finance function played a central role in the business planning of most of these companies. In most cases, CFOs fed directly into business plans, providing key information on current and future financial risks and opportunities, which ultimately determined the strategic decisions taken, such as whether or not to proceed with a particular acquisition or diversify into a new market.

In summary, the high-growth businesses we looked at clearly indicate that the finance function sits at the heart of a truly evolving, dynamic business. To enable this function to reach its full potential, it’s vital to implement strong financial management, with a comprehensive bird’s eye view over how the finance function interacts with operations and informs strategy.

In exploring the role and significance of the finance function in eight high-growth businesses worldwide, and collating the experience of their CFOs and financial managers together with ACCA’s earlier research, this guide has endeavoured to show that this function can extend beyond its traditionally perceived auxiliary role to one of a strategic business partner that drives growth as well as enabling it.

The majority of CFOs and financial managers interviewed as part of this research asserted that the finance function in their organisations has, indeed, been integral to enabling the business to achieve its growth. Specifically, it has proved central to efforts to initiate, enter and establish new markets; it has acted as a partner to the business development team and other departments; and it has ensured financial health and discipline so that in each case the company could continue growing.

In exploring these key elements of the finance function, this guide has provided points of consideration for executives and CFOs of high-potential businesses, showing how they can fully understand and harness the potential of the finance function, and how this can be managed to facilitate and maintain high growth, describing the role of the finance function in business planning, and emphasising the importance of having the right skill sets and leadership in place to enable these benefits.

Crucially, this guide has demonstrated that the finance function needs to work in tandem with or, even more powerfully, become integrated across other key business development departments in order to prepare carefully for, and plan, new growth. Alongside this, in order to fully contribute to the business development as well as operational processes, the finance function has a key role to play in monitoring and controlling high growth as it unfolds, as well as forecasting future trends and possible new directions for the business, on the basis of present and historical financial data. By holding these key responsibilities, the finance function extends well beyond the traditional accountancy and processing role, becoming a central rather than auxiliary presence, and an essential element in the strategic decision-making of a high-growth business.

 

Rushika Bhatia Editor

Rushika Bhatia is one of the region’s leading commentators on business and current affairs issues. She is the Editor of SME Advisor magazine - the flagship title of CPI Business. She is passionate about infographics – with special emphasis on data, research and statistics. Rushika has a Bachelor’s Degree from Indiana University, USA and is also CIMA qualified.

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