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One of the most often overlooked areas of strategy development is the finance and accounting function. Often regarded as a "back-office" aspect of the business, the finance function plays a critical role in providing information for decision-making. Because decisions are only as good as the information on which they are based, establishing a reliable pipeline of data from the external business environment must be a priority for all businesses, regardless of size and industry.

 

The finance function consists of the people, technology, processes, and policies that dictate tasks and decisions related to financial resources of a company. The objective of the finance function is not only to serve the organization's current financial/accounting needs but also to lay a solid foundation of infrastructure and awareness that enables the business to flourish in the future. Conceptualizing, implementing, and maintaining the right technology, software applications, and processes are central to managing the finance function. More than just software applications and the hardware that runs them, the finance function also encompasses policies, standards, strategies, and analysis paradigms necessary for decision-making. The various components of the finance function collectively define the mechanism by which data flows through the company -- also known as the data flow dynamic. This is the core of the finance function that gathers, processes, and analyzes raw data in the business environment -- translating it to critical information for management.

 

Virtually all aspects of a business are impacted by the finance function. Some of the more obvious ways in which it manifests itself include -- closing the books, budgeting and forecasting, external reporting, billing and collections, and tax compliance. Accurate and timely reporting of financial results is critical for both internal and external purposes. The finance function also impacts human resources, marketing, and product/service development. Decisions in these areas of a business are often reliant on data, whether it is historical or prospective, generated by the finance function.

 

For many businesses the greatest impediment to developing a sound finance function lies in the traditional (mis)perceptions of finance and accounting. Finance function development must be framed with relevant perceptions of what the finance and accounting area represents, as well as appropriate expectations of what the finance function should offer. Executives and business owners must shed the notion that the finance and accounting area of the business is the slow wheeling accumulator of historical data. Rather, the attitude should be that this area of the business is the steward of financial data that is active in reporting not only historical data to the external community but also prospective data (forecasts, budgets, and business models) to management. This type of internal reporting is essential to marketing, product development, acquisitions, and divestitures.

 

Companies are never too big or too small to begin strategizing the finance function. Strategizing in this context is never more important than when the business is posturing for a major business life-cycle event. Life cycle events or milestones in a business' life represent major changes in the organization intended to make the company stronger. A few examples of life-cycle events that are dependent on a strong finance function include going public, acquiring a business loan (for the first time), and seeking growth through acquisition. Because key decisions made by executives both inside and outside of the company will determine a favorable outcome in the above situations, the finance function must be prepared to serve informational needs throughout these endeavors.

 

Ultimately, developing a sound finance function and companion strategy is less about meshing hardware, software, and policies and more about establishing a culture of strategic mindedness and continuous improvement in the finance area. Cultivating a strategic mind set throughout the organization is more fruitful in the long term than limiting strategic efforts to cookbook-type checklists.

 

The challenge of developing sound finance strategies is common to companies of all sizes. This means that businesses of all sizes and industries will be subject to their own unique challenges and possess their own particular advantages. For example, initiating a culture of strategic mindedness regarding the finance function is less challenging in small and emerging businesses. Because they are smaller and lack complexity in form and structure, it is often easier to institute change more quickly. Conversely, large companies have the advantage of tapping a greater cache of resources to discern matters of finance strategy and employ solutions.  Access to greater pools of knowledge and financial resources to bankroll the finance function and related strategies, enables many large companies to address this area more effectively over the long term.

 

The greatest barrier to strategizing the finance function is resistance, or worse, indifference to forward, proactive thinking. Management that does not seek to be progressive in this area puts all stakeholders at risk.