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How is the finance function evolving?

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How is the finance function evolving?

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Recent analysis implies that finance departments in the commercial sector are moving away from transaction processing and towards ‘insight’.

Until recently, finance teams spent most of their time on transactions, processing and historic reporting.

But the big four audit firms have provided analysis over the past 10 years showing that the finance function is now changing dramatically, with finance departments in commercial environments now expected to deliver fast, accurate insightful analysis, while managing risk and reducing costs.

This represents a move away from transaction processing and towards insight and interpretation.

Profit vs. non-profit organisations

In the commercial world, technology and the pressures of the modern business world have turned the finance function on its head.

In 2016, ACCA’s State of the Non-Profit Finance Function report said that: “In for-profit SMEs, the finance function has been found to play the driving role in phases of growth and transition, and firms develop and invest in their finance function to reach the next stage in their lifecycle.”

But the same is not currently true of the not-for-profit sector. RSM’s Funding and Functionality research identifies that:

  • 40 per cent of charity finance teams are spending more than a third of their time on transactional processing every month;
  • 31 per cent use over 11 spreadsheets to provide financial analysis;
  • 30 per cent only produce financial management reports quarterly or termly;
  • 31 per cent take more than 20 days after month end to provide management information.

The RSM report identifies that "41 per cent of charities struggled to recruit skilled staff in 2017, up from 33 per cent in 2015". The ACCA report confirms that overall, charities are investing less in financial management, human resources, IT, governance and legal systems.

And according to PwC’s Finance Effectiveness Benchmark Report 2017, between 35 and 46 per cent of time and cost could be eliminated in processing areas such and billing, management reporting, general accounting, budgeting, forecasting) through streamlining process.

In contrast, commercial organisations are prioritising investment in infrastructure and their delivery platforms.

If charities invested in their infrastructure and financial leaders for the future, they would eventually see huge long-term benefits.

The future of the finance function

In the future, it’s predicted that the finance function will be a smaller but with more highly skilled and higher paid people. There will be new jobs in data and analytics.

It’s likely that finance departments for not-for-profit organisations will report information relevant to a wider group of stakeholders on a ‘real-time’ basis.

There may also be new ways to measure the long-term value of organisations.

How finance directors can lead changes

In order to bring their companies up to speed, finance directors must:

  • Have a strategic mind set in order to plan future sustainability around predictable income streams.
  • Challenge colleagues and help them to develop sound financial business cases for future investment.
  • Understand that different business models are needed at different stages of an organisation’s growth.
  • Be open for debate about the finances - allow stakeholders to ask “stupid questions” to understand what’s going on.
  • Focus and prioritise ruthlessly to ensure future resources are sufficient future resources.
  • Allocate resources and help to decide where any discretionary spend can be placed.
  • Help boards tease out their finance strategy and the business model for the organisation.

If you are a finance director looking for your next role, make sure you register your search criteria with us.

Date Posted: October 9th 2018

Posted By: Phil Scott