Three Moves That Don’t Work in Fixing Finance and a New Approach That Does

The noted American writer H.L. Mencken famously remarked that for every complex problem there is a solution that’s clear, simple … and wrong.

If Mencken had been a CFO he might have observed that when it comes to improving the finance functions of small and midsize businesses, every complex challenge has a traditional solution that’s obvious, intuitive — and totally self-defeating.

Here are three common challenges for SMB finance departments, and the traditional responses:

1. You’re not getting the timely, accurate financial reporting and analysis you need, so you hire a highly qualified finance pro to deliver the goods. Fingers crossed, this new person will bring a wealth of experience that can benefit your organization. But how do you know that this experience was gained in applying industry best practices, as opposed to participating in established company-specific routines? Chances are, your new hire will simply replicate whatever procedures were standard in his or her previous role.

Consider also the 80/20 rule, a.k.a. the Pareto Principle. This handy rule-of-thumb which tells us (among other things) that 80 percent of your profit comes from 20 percent of the things you spend time on certainly applies here. In the SMB, the new hire will spend 20 percent of his or her time on work that requires a high level of skill – the work you hired them for – and 80 percent on tasks that could be performed just as efficiently with a more basic skill set. Trouble is, you’re paying just as much for the 80 percent as for the 20 percent. In effect, you’re overpaying for the skills you need.

True, you could hire someone with just the lower level of skills and pay less. But then your new employee will be qualified for the 80 percent of the work that’s routine, but under-qualified for the crucial 20 percent that demands advanced knowledge and skills. So you’re back where you started.

2. Some of your processes generate endless headaches and manual work, so you invest in a software package to solve your needs. Sounds good … but typically companies struggle to leverage the full capabilities of the system due to only basic understanding of the solution. Assuming the right investment and the best case result, you may overcome the immediate challenge, but the next problem is always waiting in the wings. What happens then? Often, another software purchase to solve tangential problems. Will the first system be able to talk to the second, or the third or fourth? Or will your staff end up shunting data manually from one tool to another? Acquiring a bunch of disparate systems can limit your visibility into key indicators, introduce errors into your financial data, and hobble your company’s growth.

3. You need to focus on the strategic decisions that drive revenue and growth, so you try to pull out of the more tactical types of work, and rely on your staff to pick up the slack. The pressure is on for finance to demonstrate its value-add. CFOs at companies of all sizes struggle with this mandate, but the challenge is especially acute in the finance departments of smaller businesses, where processes and controls are just not mature enough to sustain themselves without constant intervention from the CEO or CFO. Paper- and email-based processes provide minimal visibility into revenue and payment streams, leaving businesses vulnerable to inaccuracies, unbilled revenue, reporting delays and even fraud.  Processes are critically dependent on single “owners” who, let’s not forget, can walk out the door at any time, taking crucial operational knowledge with them. The executive’s role is not so much that of corporate strategist as that of number cruncher, trainer, and process troubleshooter.

One solution to these problems proven to work is an outsourcing partner with a comprehensive span of capabilities. It’s an approach that many large enterprises have long relied on, but which has only recently become available to small and midsize organizations. An SMB-focused outsourcing partner can provide:

* The right finance and accounting expertise. On-demand staff with the level of skills you need, right-sourced from a global personnel pool, can give you higher quality management and deliverables within a low variable cost structure.

* Scalable, integrated technologies. A vendor’s established software-as-a-service F&A platform can help you automate accounts receivable and payable processes as well as provide greater transparency into the finance function. Leveraging an established platform allows you to avoid the common implementation pitfalls of doing it yourself, at a fraction of the total cost, and with much shorter implementation times.

* Best-in-class processes and controls. Best practices drawn from an entire industry – not just one or two companies – enable you to accelerate reporting; guard against lost revenue, over payments and fraud; and find the time to make strategic contributions at the highest levels of the organization.

It’s not the traditional approach, nor perhaps the most obvious one. But it’s certainly the solution that’s clear, simple … and right.

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