For most businesses, the finance function is a key part of their fundamental business operations. It performs hundreds of financial tasks daily and according to PWC’s Benchmark Report, it costs 0.55 percent of revenue for those firms with the best performing finance function. With cost minimization and process efficiency a key goal for most businesses when it comes to their finance department, many management professionals are seeking strategies to future proof their organization including the use of finance process mapping. The use of a finance process map can help to not just reduce the costs of a business’ individual cost centers but boost its productivity overall, making it a handy tool for any financial management professional or business looking to optimize their operations.
Explaining Finance Process Mapping
Business process mapping is not a new introduction, by any measure. One of the most cited reasons for business failure? Inadequate process management, including its finances. With 82 percent of businesses failing due to poor cash flow management and 65 percent of business owners attribute financial mismanagement for the collapse of their business, according to a study by the accounting software giant, Xero. With the help of a process map, management can visually assign the optimal sequence of the financial functions in the business such as raising of invoices, bank, and cash reconciliations and the drafting of monthly financial reports i.e. income statements, adjusted sales forecasts and the timeline for raising equity or finance. Also, financial process mapping allows for delegation and increased transparency since the categorization enables management to visualize the entire business process including the possible actions after a decision/stage and whose responsibilities each function is. With such a wider reach, it is safe to say that the inclusion of finance process mapping not only improves the finance function of a business but also benefits other aspects including its human resource management.
The Designing Of A Personalised Financial System
When setting up a finance department or looking to refine its operations, management must answer a few foundational questions. What are the main objectives of the department? What functions do you need the department to carry out, specific to your business and industry? The finance department is not just responsible for number crunching but rather should be viewed as an important pillar in the operational and strategic direction of a business. With finance process mapping, management can identify unnecessary functions and vice versa. For example, a business that operates largely with credit sales and purchases will benefit from more emphasis being placed on establishing a strong credit collection policy team. Similarly, those unable to service their outstanding debts can identify options that address the impact of payment defaults on a business’s financial standing. Designing a system personalized to your business’ objectives allows for a better organizational fit, reduced costs, and a smoother operational flow within the department and organization overall.
The Identification Of Areas Primed For Automation And Standardization
The automation of key finance functions can save a business both time and money in the long run. With many finance departments routinely processing repetitive transactions such as invoice processing or aged debt analysis, a business may find itself vulnerable if it relies too much on manual effort. The solution lies in first identifying these functions, which a financial process map can help management do. It also helps in the identification of workplace conflict, including a clash in authorization or job roles. Having a clear chain of command provides lower-level employees with direction and promotes transparency and taking responsibility for actions.
Assisting The Human Resources Department’s Function
A business’ human resources department is primarily responsible for the recruitment and retaining of the business’ employees. With the finance function overseeing the financial direction of the other functions including HR, there is a clear overlap that can be used as a beneficial point with the help of process mapping. One of the costs routinely processed is that of employee wages and with the average cost of recruiting an employee averaging $4,129, keeping these costs down is often a priority of management. With the help of finance process mapping, areas for cost savings in the finance function including areas for outsourcing are identified. This helps the HR department maintain the optimal number of employees and the finance department keeps staff costs down.
The finance function is the lifeblood of any business. It determines your growth plans, current marketing reach, and even your production and recruitment capacity. With such a wide-reaching impact, a business' financial function must be kept in an optimal, efficient state. The answer to this? Finance process mapping.
by guest contributor Jennifer Hole