A growing business tends to reach a tipping point – a stage where you will be held back by the software that previously served you well.
Unless changes are made, you risk struggling on with inefficient processes and a system that cannot produce the timely information that drives better management decisions.
Spotting when you’ve reached that point for your finance team and your wider business can be tricky, especially as it occurs at different stages for different kinds of business – and when you have plenty of other things demanding your attention.
Guy Kerkvliet, Head of Outsourcing at Armstrong Watson, helps businesses make the necessary changes. He says the trigger comes at different points for different businesses.
“One business turning over £10m might be able to make do with a relatively simple piece of software, because they’re a consultancy with high sales prices but low transaction volumes,” he says.
“Another might be a retailer with a lot of staff and stock. It will need systems to do all sorts of things, from managing the stock to handling accounts payable. That’s a different ball game.”
People, process and technology iplicit's array of budgeting and reporting features impressed
“When I talk to clients and prospects, it's about three things – people, process and technology,” says Guy.
“A growing business tends to get to a tipping point where, capacity-wise, you need more people to do the same type of work. That’s when the other two elements come into play.
“On process, you need to ask: Is the process you’re following the right process for your business? If you were to design it from scratch, is that how you would do it? If that’s not the case, it’s probably an indicator that you should change things.
“And then comes technology. Are you using your technology to its fullest capabilities?
“The trigger for changing things depends on the company but it’s usually about resources. It’s either about how you can best use the resources you have, or if you don’t have enough resources in your team, how you can use technology to help with that problem.”
Low morale in your team might well be one of the warning signs that technology is holding you back. As the business grows, any work that’s not automated is likely to take up even more time.
With workloads getting heavier, people in a small finance department might feel they can barely take a day off, for fear they’ll inconvenience their colleagues and face a huge backlog when they’re back at work.
“The accounts payable function, if it’s a very manual, labour-intensive process, will grind to a halt if that person is off sick or on holiday – whereas a well-designed process combined with automation will continue to flow, regardless of whether that person is there,” says Guy.
Inefficient processes are a drag on efficiency but also present real risks.
“If you’re not able review a report, at short notice, about an aged debtor or an aged creditor, showing you exactly what you’re owed or what you owe, that’s a risk around the insights to your cashflow,” says Guy.
“Similarly, if your financial close process takes longer than about five days, you’re probably being held back by a lot of manual admin processes.
“I know of businesses where it takes a day to refresh their P&L reports. That’s because it’s all Excel-based and they have extract and manipulate data out of the system– and even then, the reports are in quite a poor format.
“If you can’t create reports at the click of a button, that’s worrying. If you’ve got a senior person in the finance team taking a day to generate a P&L report, they’re certainly not adding value anywhere else, they’re just doing an admin task. It’s even worse if they find out they’ve got a couple of minor adjustments to make and then lose another day to rerun reports.”
If you’re spending a lot of time processing paper, or rekeying data from one system into another, it’s a sign that you’re not making use of software to drive efficiency.
“If you’re manually keying in invoices, you’re behind the curve quite a bit,” says Guy.
“At the same time, if you’re not able to send client invoices relatively quickly, and if you’re not set up to do that via email, you’re probably quite behind.”
Many businesses are prepared to put up with such inefficiency in the finance team, unaware that an upgrade to their technology could also produce better information for management.
“People don’t know what they don’t know,” says Guy.
“If you aren’t aware of the kind of information you could be getting out of the system every day, you’ll be content with what you’ve always had.
“When we say to a business ‘By designing this process ever-so-slightly differently, we can give you this type of data on a daily basis’, it can be quite eye-opening, because they’ve never really thought about those possibilities.”
Benefits of better information
“What’s key for businesses is having insight into the numbers when they’re relevant,” says Guy.
“That could be about having numbers available quickly after month-end but it’s also about having them available throughout the month and the year, with dashboards or KPI reports that help steer a business leader to make decisions.
“If you’re running a hotel chain, for example, you’ll want to know: How are we doing revenue-wise? How many rooms are occupied? What’s the average rate they’re going for? Is the trend up or down – and if it’s going downwards, what can we do to remedy it? You might want to spend a bit more money on advertising to try and boost reservations for the next weekend.
“If your reporting solution is very old-fashioned and Excel-based, that hampers the decisions that drive revenue. Having automated reports that come out on a daily basis, via email or through a portal you log into, is important to driving the business.”
Reviewing the system
Reviewing your processes and systems can be a daunting task, but it is likely to pay off.
Guy outlines his own approach to such reviews. “We do a business health check, looking at what the finance system is like and how it’s interacting with the wider business,” he says.
“It might start with your till system in a shop. How does it link up with the finance system? Is there an automation there? Is your credit card machine interfaced with your till system or is that a manual process?
“We would try and look at it all, from the point the revenue is recognised all the way up to the reporting, whether that’s VAT reporting or annual compliance.
“We try to follow the transactions through the organisation and see if there are touchpoints with other parts of the business and investigate how we could best make that work.”
Such a review can be done internally, or in discussion with software vendors, or with a business advisor.
Guy says: “It’s helpful to have someone to challenge certain things, because some businesses face the age-old problem of ‘We’ve always done it this way’. The process has just grown up over time and people have accepted that it’s the way things are done.”
Guy Kerkvliet has written about how to choose the right outsourced accounting software for your business.
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