How to Maximize Your ROI with Finance Transformation

Private equity firms have different focuses and resulting strategies for how to ensure they get the most return on their investments.

For firms that invest in small to mid-market companies, the finance and accounting organization in new portfolio companies is often a good place to find optimization opportunities. To set yourself up for finance transformation success, it’s essential to focus on four main areas: leadership, processes, technology and people.

4 Key Areas to Focus on When Considering Finance Transformation

1. Leadership
2. Processes
3. Technology
4. People

1. Establish the right leadership

It’s essential to ensure you have the right leadership to drive goal development and actualization.

To begin, install the right professional financial management (if it’s not already in place). This could mean a CFO for some companies — but perhaps a Controller/VP of Finance is sufficient if the company is smaller and there won’t be much M&A, financing activities or balance sheet management.

Good financial team management is the foundation to driving successful finance transformation and effectively accomplishing company goals.

2. Rework processes as needed to drive efficiency

It’s essential to perform an assessment of your current processes to identify issues and areas of improvement, as process deficiencies are the No. 1 culprit that contributes to a trickle down of other major problems.

When created for legacy purposes and never reviewed, processes typically require unnecessary steps that take too long to perform.

These additional steps slow down reporting — and your ability to react to changes and new information. In this case, accounting becomes a bottleneck, so streamlining or removing poorly constructed or obsolete processes can improve monthly close, reporting time and accuracy.

Processes leave room for human error. These mistakes can result in inaccurate reporting — or worse, incorrect invoicing of customers or handling of vendor bills.

This could show up in the form of revenue leakage-unsent or incorrect customer invoicing, unclear payment timeframes or unmonitored profitability. It can also take the form of vendor bills being paid at a time when they shouldn’t be, or possibly paid multiple times.

The time required to correct these inaccuracies can cost even more. 

What are some remedies? Physical controls and separation of duties can help with these problems, but can often slow down processes. So, this is where the next step comes into action.

3. Ensure the integration of the right technology systems and solutions

During and after your process review, you’ll also need to assess your technology stack and how it’s being leveraged.

For example, does the company need a new ERP (such as NetSuite), or does its current one need to be optimized due to incorrect configuration or use? The information you gathered in reviewing processes will be helpful in selecting and optimizing 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.

In addition, accounts payable (including expense reports) and accounts receivable can be highly automated through workflows and AI that has been built into most new ERP’s or 3^rd-party software.

This automation creates a paperless environment which is much more efficient for record-keeping 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, it should primarily be managed by an ERP or a third-party tool. If most or all these functions are being handled in Excel, then there are ways to improve the accuracy and decrease the amount of time being spent.

Reporting (including BOD and KPI’s) can largely be automated as well. Even in environments where there’s heightened M&A activity, if consolidation software and processes are established correctly from the get-go, then integrating new companies can be significantly accelerated.

4. Ensure you have the right people on your team

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

Hiring people to compensate for a process or technology problem is usually the wrong approach. Instead, take the opportunity to determine if roles can be eliminated or consolidated.

Performing the previous activities is vital to ensuring the success of this step.

Key questions to ask when focusing on hiring quality talent:

• Do you have the right team with the right skill sets to accomplish what needs to be done?
• Would training help in bridging the gaps for missing skills? (Training is often more cost-effective than hiring new people, so definitely consider this option.)

In many companies, we often find that Financial Planning & Analysis (FP&A) is a function/area that many people understaff because it is viewed as something that someone else can do as part of their job (the CFO or Controller, usually).

When companies are small, this can be the best option, but as they grow, team members need to be specialists. Also, both internal and external reporting needs to increase, which creates even more of a requirement for a dedicated person or team to fill this role.

Finance Transformation Consultant: What They Do & How They Help Your Business

Final Thoughts on How Finance Transformation Maximizes Your ROI

Going through a finance transformation process will result in your finance and accounting experts becoming invaluable business partners that support leadership in achieving corporate milestones and goals.

By providing better and more timely analytics and reporting — and creating a culture of continuous improvement — your organization will become more responsive, efficient and prepared for scale.