The need for a forward-looking Finance System.
Updated: Mar 14
For many of us small and medium size growing organisation, our finance system is probably least thought out after it has been initially setup. Many of us have cloud-based systems such as Xero, Quickbooks or MYOB to run our accounts department and it has largely given us what we need to capture transactions, receive and pay money. However, in this uncertain and unpredictable world, it is more important than ever to be on top of our numbers and to be forward looking.
As the world is going through the COVID-19 pandemic, this is having a catastrophic impact on the economy. This has a massive impact and is currently driving decisions by management and a need to access accurate data to make many tough decisions. The simple cloud-based accounting software captures a lot of this information but is grossly inadequate to come up with the decisions you need to make.
Too many organisations are only using their finance systems to capture simple transactions. There are many organisations, however, that have invested into systems that focus on forecasting and predicting future scenarios, but this is not widespread throughout business. These systems are less transactional focused and more around portfolio planning, labour or supply chain planning.
These systems have historically taken a long time to setup and implement with a strong dependency on developers. There are, however, ways around this and tools available to give you the flexibility to plan different scenarios and understand the impact on your decisions on the bottom line.
If you want to shift from being completely transactional focused to being more strategic in your financial thinking, now is the time to start. The first place to begin is to learn Excel and come up with a financial model depending on the area you would like to commence. Down the track when the world settles down this can easily be built into cloud-based software and automated. However, now is a better time than ever to come up with the thinking.
The benefits of building a forward-looking finance system:
· Understand the impact of decisions on your Financials
· Flexibility and agility
· Planning in an uncertain world
· Better visibility and transparency
· More sustainable decisions
Here are some areas you can start to think about:
1. Labour Planning — ramping up or down your workforce based on the demand of your products / services and the impact on profitability and cashflows.
2. Cash Flow Planning — understanding all the positions, inputs and commitments from throughout your business and how you will manage this through uncertain times.
3. Inventory Management — managing the backorders, re-deploying stock and turnover to fine tune what you are holding to best match demand. This is not only for physical products, but also the people that you are selling into your customers.
4. Forecasting — starting with Sales and working throughout your business to understand if certain products rise or fall what the impact is in your business.
In these uncertain times we must remain vigilant and shift our mind set to using the information in our businesses to make good decisions. If you are relying on your finance systems to purely capture transactions, this is grossly inadequate to navigate the needs in this unpredictable and disruptive world.
I’d love to hear your experiences feel free to comment below.