How to Build a Strong Finance & Accounting Function

Most founders are looking for ways to build a long-lasting, sustainable business as quickly as possible while preserving capital.

However, because the accounting/finance organization is often considered an overhead cost, it is regularly neglected.

Finance and accounting are often viewed as the same, but there are many important differences to keep in mind. For example, accounting handles historical financial record-keeping, and finance handles forward-looking forecasts/metrics/KPI/etc.

Finance cannot exist without good accounting. When they are working in harmony, these functions can add a lot of value to an organization.

Getting the most from these functions is accomplished by setting them up correctly from the beginning, focusing on these three main business buckets: processes, technology, and people.

What is the finance function?

In business, the finance function can be defined as acquiring, producing and managing financial resources and information relating to financial planning, cash flow forecasting, fundraising, fund allocation, budgeting, and more.

By calculating important financial information like net value and incoming payments, they can be instrumental in generating revenue and saving time.

How to Build the Foundation of Your Finance and Accounting Function

First, let’s focus on installing the right professional financial management.

For some companies, this could mean a CFO, or a Controller/VP of Finance is sufficient if the company is smaller, and there won’t be much M&A, financing activity, or balance sheet management.

Good financial team management will be the foundation for effectively accomplishing the rest of the next steps, and a strong background in accounting is a must-have.

3 Considerations for Creating a More Effective Finance and Accounting Function

Now that you have the foundation in place, you can focus on setting up the rest of your structure by following these key steps.

1. Processes for your finance and accounting teams

Once hired, your new leader should evaluate the way accounting and finance-related processes should work in an ideal world.

Creating process documents and process flows make it easier to spot gaps, duplication of work, and overall process deficiencies.

Problems caused by process deficiencies:

• Ill-defined processes are not scalable. When processes are not well-thought-out at their inception, they often result in manual processes with unnecessary steps. These additional steps slow down reporting and, therefore, slow the business’ ability to react to changes and new information. In this case, accounting becomes a bottleneck. Setting up and continuing to streamline processes can improve monthly close, reporting time, and accuracy.
• Manual processes leave room for human error. These errors can result in inaccurate reporting, incorrect invoicing, or mishandling of vendor payments. For example, this could show up in the form of revenue leakage-unsent or incorrect customer invoicing and unclear payment terms, or unmonitored profitability. It can also take the form of vendor bills getting paid at a time when they shouldn’t be, or possibly paid multiple times. The time required to correct these inaccuracies can be a considerable investment, and often doesn’t address the root cause of the underlying problem(s).

Physical controls and separation of duties can help with these various challenges, but can often slow down processes. So, this is where the next step comes into action.

2. Technology used by finance and accounting

During and after a review of processes, it is crucial to assess the technology stack and how users will leverage it.

Does your company need a new ERP, or does the current one need to be optimized for configuration or use? Information that gets gathered during a review of processes can help to select and optimize a set of technology solutions.

An important factor during this process is having a dedicated implementation expert or external partner to project manage and help you get the most out of the technology, based on specific business processes.

Key considerations for choosing the right technology:

• AI functionality (built into most new ERP systems and 3^rd party software) and workflows, can be utilized to automate the accounts payable and accounts receivable processes. This automation creates a paperless environment which is much more efficient for recordkeeping and dramatically minimizes the risk of human error, while still making the process move quicker because of its electronic nature.
• If there is complexity around project tracking, inventory, commissions, leases, revenue recognition, among other things, these areas should primarily be managed by an ERP or a third-party tool. If most or all these functions are handled in Excel, there are various ways and helpful resources that can improve the accuracy and decrease the amount of time spent to complete these tasks.
• Reporting (including BOD and KPI’s) can largely be automated as well. Even in environments where lots of M&A is happening, if consolidation software and processes are set up correctly from the beginning, then integrating new companies can be significantly accelerated.

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3. People & Leaders in your finance and accounting teams

After working with your organization to look at current processes and technology, the quality of the current accounting/finance organization should be more transparent.

Hiring people to remedy what is a process or technology problem is likely the wrong approach.

Instead, take the opportunity to determine if roles can be eliminated or consolidated. A review of processes and technology before this step is vital to success.

Key considerations for attracting great talent:

• Do you have the right team with the right skill sets to accomplish your goals?
• Would training help in bridging the gap in missing skills? Training is often more cost-effective than hiring new people, so definitely consider this option.
• The Financial Planning & Analysis (FP&A) function is sometimes understaffed. Often, we view this role as one not requiring a full-time employee. When companies are small, this can be the best option, but as they grow, team members need to be specialists. Both internal and external reporting needs increase, which highlights the need for a dedicated person or team to fill this role.

Final Thoughts on Building An Effective Accounting & Finance Function

Going through this process early in your company’s development will result in your accounting organization becoming an invaluable business partner that supports you in achieving milestones and goals.

Better and more timely analytics and reporting, as well as creating a culture of continuous improvement, will lead to a more responsive and scalable organization.