As a business grows, its finance function often develops in response to immediate needs rather than through deliberate design.
A spreadsheet is introduced to solve a particular problem. A manual approval process is added because the accounting system cannot quite do what is needed. One person takes ownership of a task because they happen to understand it, and gradually becomes the only person who knows how it works.
Each decision may be perfectly sensible at the time. Taken together, however, they can result in a finance function that is busy, dependent on individuals and increasingly difficult to manage.
A finance function review gives a business the opportunity to step back and look at how finance is operating as a whole.
It considers whether the people, processes, controls, systems and reporting are working together effectively, and whether the function is equipped to support the next stage of the company’s growth.
What is a finance function review?
A finance function review is an independent assessment of how the finance function operates today and what may need to change in the future.
It looks beyond the numbers being reported and examines how those numbers are produced.
This will usually include:
– the structure of the finance team
– roles and responsibilities
– end to end finance processes
– financial controls and reconciliations
– management information and reporting
– the use of accounting systems and spreadsheets
– opportunities for digitisation, automation and AI
– the future needs of the business
The purpose isn’t simply to identify weaknesses. It is to understand what is already working, where the greatest risks or inefficiencies sit, and which improvements will make the most meaningful difference.
Why do businesses need a finance function review?
Many finance functions grow organically.
A process that was appropriate when the business was smaller may remain in place long after the volume and complexity of the work have increased. Additional reports are requested, but the month-end process underneath them is not redesigned. New systems are introduced, yet manual spreadsheets and workarounds continue alongside them.
The finance team may still produce the accounts each month, but that does not necessarily mean the function is operating effectively.
Signs that a finance function may benefit from a review include:
– month-end reporting takes too long
– management information is regularly questioned or adjusted
– important tasks depend on one individual
– the same data is entered into several systems or spreadsheets
– reconciliations are delayed or inconsistently completed
– paper-based or manual processes remain in place
– the accounting system is not being used to its full capability
– finance spends most of its time processing transactions
– reporting is heavily historical and provides limited forward visibility
– the business has grown or changed, but the finance function has not evolved with it
– a new accounting or ERP system is planned, but the requirements have not yet been clearly defined
These problems are not necessarily a reflection of the people within the team.
Capable finance professionals can be held back by unclear responsibilities, inefficient processes, unsuitable systems or a lack of capacity. A good finance function review should assess the design of the function, rather than beginning with assumptions about individual performance.
What does a well-run finance function look like?
There is no single structure that suits every organisation.
The right finance function will depend on the size of the company, its business model, its complexity, its future plans and the information its stakeholders require.
However, well-run finance functions tend to share some common characteristics.
1. The finance function is aligned with the direction of the business
A finance function should not be designed solely around the company as it operates today.
It also needs to be capable of supporting where the business is going next.
Future plans may include:
– entering new markets
– introducing new products or services
– moving into manufacturing
– acquiring another business
– securing investment
– preparing for an exit
– increasing reporting to a parent company, lender or investor
– implementing a new accounting or ERP system
Each of these developments may change what information finance needs to capture, how reporting is structured and which skills are required within the team.
A finance function review should therefore begin with the wider business strategy.
Before looking at systems or processes, it is important to understand what the business is trying to achieve and what finance will need to do differently to support it.
2. Roles and responsibilities are clear
In a well-run finance function, everyone understands what they are responsible for.
Recurring tasks have a clear owner. Deadlines are understood. Review and approval responsibilities are defined. People know how their work connects with the rest of the finance process.
A review should also identify where knowledge or responsibility is concentrated in one person. Key person dependency can create significant risk. It may only become visible when somebody is absent, leaves the company or becomes overwhelmed by the volume of work.
Clear responsibilities, documented processes and appropriate cover arrangements make the finance function more resilient without creating unnecessary bureaucracy.
3. Processes work from beginning to end
Finance processes should be reviewed as complete workflows, rather than as a series of isolated tasks.
For example, the purchase to pay process may involve:
1. raising or approving a purchase
2. receiving the goods or services
3. receiving the supplier invoice
4. matching the invoice to an order and delivery
5. recording the invoice
6. preparing and approving the payment
7. reconciling the supplier account and bank transaction
A delay, duplication or control weakness at any stage can affect the entire process.
A detailed finance function review will usually look at areas such as:
– purchase to pay
– order to cash
– invoicing and credit control
– bank and credit card reconciliations
– control account reconciliations
– payroll interfaces
– month-end close
– management reporting
– cash flow forecasting
– group or investor reporting
– the flow of information between finance and operational teams
The aim is to understand what happens in practice, including the manual interventions and workarounds that may not appear in formal process notes.
4. Financial controls are built into everyday activity
Effective controls should form part of the normal finance routine. Bank, credit card and control accounts should be reconciled regularly. Journals should be supported and reviewed. Payment approvals should be clear. Balance sheet accounts should be understood and investigated where necessary. These activities are essential to the accuracy of the management information being produced. Business owners naturally focus on the profit and loss account, but problems can remain hidden on the balance sheet for a considerable period if reconciliations and reviews are not completed consistently. Well-designed controls should provide confidence in the numbers without creating unnecessary delays.
5. Management information supports decisions
Producing a monthly set of accounts is not the same as providing useful management information.
A well-run finance function should provide decision-makers with information that is:
– accurate
– timely
– consistent
– relevant to the business model
– easy to understand
– forward-looking as well as historical
The most useful information will vary from one business to another.
It may include profitability by customer, project, product or location. It may focus on cash, recurring revenue, utilisation, working capital, order pipeline or operational performance.
The starting point should be the needs of the people using the information.
A finance function review should therefore ask:
– Who relies on the financial information?
– What decisions do they need to make?
– What information would help them make those decisions?
– Is that information currently available?
– Can it be produced accurately and efficiently?
Systems support the process
Technology can play an important role in modernising a finance function, but it shouldn’t automatically be the starting point.
New software won’t resolve unclear responsibilities, inconsistent data or poorly designed processes. In some cases, it simply allows an inefficient process to happen more quickly.
A finance systems review should consider:
– whether the current accounting software is being used effectively
– whether existing functionality is being overlooked
– where spreadsheets and manual workarounds sit outside the system
– whether information is being entered more than once
– whether document capture or approval workflows could remove routine administration
– whether bank feeds and integrations are working properly
– where automation could reduce repetitive work
– which improvements should be made now
– which changes should form part of a future system implementation
Often, the most valuable improvements are relatively straightforward.
A business may not need to replace its accounting system. It may simply need to use the existing system more effectively, improve the processes around it or introduce carefully selected tools that address specific problems.
This is why our approach is based on people first, process second and tools third.
What should a finance function review cover?
A comprehensive review will usually consider five connected areas.
Strategic direction
What is changing within the business, and what will finance need to do differently as a result?
Stakeholder requirements
What information is required by the managing director, operational leaders, board, investors, lenders, parent company or external advisers?
Finance team structure
Are responsibilities clear? Are there gaps, overlaps or key person dependencies? Does the team have the capacity and skills required for the next stage of growth?
Processes and controls
How does work move through the finance function in practice? Where are the delays, repeated tasks, manual interventions and control weaknesses?
Systems and data
Are the current systems being used effectively? Where could digitisation or automation improve the process? Which changes should be made now, and which should be aligned with future technology plans?
Looking at these areas together is important.
A systems problem may actually be a process problem. A reporting issue may originate in the way operational data is captured. A capacity problem may be caused by unnecessary manual work rather than a shortage of people.
The review needs to consider the whole finance function before recommending a solution.
What should the business receive at the end of the review?
A useful finance function review should produce more than a report describing the current problems.
It should provide a practical and prioritised route forward.
This will normally include two main outputs.
A finance function diagnostic
The diagnostic should explain how the function operates today, including:
– what is working well
– the principal risks and inefficiencies
– areas of key person dependency
– gaps in processes or controls
– limitations within reporting
– opportunities to make better use of existing systems
– areas where the current structure may not support future growth
A prioritised modernisation plan
Recommendations should be grouped according to their urgency, complexity and dependency on other projects.
For example:
Quick wins
Changes that can be implemented within a relatively short period and with limited disruption.
These may include clarifying responsibilities, documenting key processes, improving reconciliations or making better use of existing system functionality.
Structural improvements
Changes that require more planning or investment. These may include redesigning processes, changing the finance team structure, introducing new reporting, improving data flows or implementing carefully selected automation.
Future system changes
Some improvements may be best delivered as part of a planned accounting or ERP implementation.
Identifying these early helps the business define its requirements properly and avoids investing in short-term solutions that will later need to be replaced. Each recommendation should explain why the change matters, the likely benefit, the approximate effort involved and the most sensible order of implementation.
How does a finance function review relate to a Financial Health Check?
A Financial Health Check can provide a valuable starting point for a growing business that wants an objective view of its finance function.
It can help identify questions such as:
– Are our reporting and controls appropriate for the size of the business?
– Are there obvious gaps or risks?
– Is the finance structure supporting our growth?
– Where should we focus our attention first?
A detailed finance function review goes further.
It may be appropriate where the business needs a more in-depth assessment of its processes, responsibilities, systems and future requirements.
This may include:
– mapping end-to-end finance processes
– assessing how effectively the accounting system is being used
– identifying manual and paper based work
– reviewing the quality and timeliness of management information
– preparing for a new system implementation
– redesigning roles and responsibilities
– developing a staged modernisation roadmap
The Financial Health Check provides an accessible way to understand the overall position. A finance function review provides the additional depth needed where the organisation or planned changes are more complex.
Is your finance function fit for the next stage of growth?
A finance function can continue operating for years without anybody stepping back to consider whether it is still the right structure for the business. Processes are added, responsibilities evolve and spreadsheets multiply. The team keeps everything moving, but the function becomes increasingly dependent on manual work and individual knowledge.
A finance function review creates the opportunity to understand how finance is really operating and to design a more effective way forward.
The starting point isn’t another piece of software or an assumption that the business needs to recruit. It’s a clear understanding of the people, processes, controls, systems and information already in place. From there, the business can make informed decisions about what should change, what should remain and what needs to be prioritised.
Not sure whether you need a Financial Health Check or a more detailed finance function review?
We can help you identify the right starting point and the level of support your business needs. Get in touch to arrange an initial conversation.
Photo by Kirsten C. on Unsplash