Selecting your type of finance function

Overview

Many people think of a finance function as a team of finance professionals who deliver set objectives and produce specified outputs. However, very few people dedicate sufficient time towards considering the different types of finance functions and their potential benefits to your organization.

Evolving technology enhancements, automation tools and outsourced service providers now offer you a range of alternative finance function structures to choose from. Finance leaders will need to consider the nature of your business and the key objectives of your finance function to determine which model to adopt.

The following diagram outlines some of the most popular finance function infrastructures currently being used across the marketplace:

Traditional finance function

The traditional model involves delivering all financial processes in house and allocating responsibilities for each process towards dedicated members of your finance team. This provides you with strong day-to-day knowledge of your financial transactions and allows you to develop bespoke finance reports.

However, this model can be expense to run and costly to scale, particularly for early stage companies. It is traditionally very manual by nature and is prone to human error. It also consumes a lot of time and restricts your ability to interact more with the wider business. Many companies are currently using this approach, but are attempting to implement automation tools to streamline your most time-consuming financial processes.

Automated finance function

Very few CFOs have currently been able to fully automate their finance functions in-house. However, this is an ongoing objective for many finance leaders who are keen to benefit from well-designed automation and reporting tools. The majority of financial processes can now be fully automated if you simplify them in the correct manner. Automation tools offer you huge time savings and can significantly reduce the cost of delivering recurring financial processes.

Those businesses who have achieved automation tend to be smaller companies with less-complex requirements. Such companies are typically able to integrate one or two basic systems to cover the majority of their finance function requirements. Many of the output reports are standardized and do not always provide the full range of information required by the leadership team. However, technology is constantly evolving and offers improved flexibility across various activities.

Your GrowCFO community predict to see many more fully-automated finance functions in place during the next decade. This will allow CFOs to spend more time on higher-value tasks and build a finance team who are far more integrated into the wider business. This will help finance professionals to spend more time on overseeing business operations, acting as a catalyst for change and providing additional input into strategic decision-making.

Outsourced finance function

An increasing number of companies are choosing to outsource their financial processes to third parties, who have already developed integrated technology solutions, supported by a team of dedicated professionals such as bookkeepers. This removes the requirement to employ an in-house finance team to deliver your recurring financial processes.

This approach typically removes your finance team from the day-to-day business transactions, which makes it more challenging to interpret your financial data and analyze underlying trends. Third party reports can often be very standardized and do not provide all of your required analysis.

Many smaller companies are considering this finance function model, for which a small finance leader may be capable of delivering most of your in-house finance requirements, surrounded by outsourced expertise.

Integrated finance team

The integrated finance team model involves building a finance team of individuals who may refer to themselves as FP&A specialists and Finance Business Partners. Such individuals will work closely with different teams across your wider business to interpret and analyze your financial performance and to present underlying trends that support decision-making.

These models can be built upon the foundations of either a fully outsourced or automated set of recurring financial processes. This helps your finance team to focus on supporting the wider business, without the need to dedicated significant time towards basic finance tasks.

Evolving finance function

The vast majority of finance functions are currently evolving versions of the traditional finance function model. Finance teams are starting to automate basic tasks such as bank reconciliations, monthly management accounts, processing purchase invoices/expense receipts and credit control.

However, most processes still require dedicated oversight and manual interventions,. Therefore, the typical modern-day finance function still has a number of finance team individuals involved in everyday financial processes.

The following diagrams presents an illustration of the desired future finance function structure being targeted by the majority of surveyed GrowCFO members:

We refer to this as the “Evolving finance function” given that very few people have been able to integrate the necessary combination of automation tools required to fully automate the complete range of financial processes.

Most finance functions within well-established scaled-up businesses are transitioning through the journey from the traditional model to the evolving model, and are currently at various points in between the two.  This means that their finance team still spends the majority of their time delivering recurring financial processes, rather than supporting the wider business with finance initiatives and strategic help.

The pace of this journey will depend upon the combination of available technology enhancements and the ability of finance teams to successfully implement change. It will also require finance leaders to evolve their finance function blueprints and to transition the types of skills and experience levels throughout their finance team.

Summary

There is no right or wrong finance function model and finance leaders should work closely with your CEO, leadership team and Board to determine which model best suits your business. This will include a wider range of considerations including your available budget, company size and structure, business complexity, technological capabilities, level of required financial insights and stakeholder expectations. You may wish to combine some of the above models, create a hybrid of them, or invent a completely new approach.

Whatever your preference, CFOs should spend time with your teams to determine your optimal finance function model and to deliver your selected blueprint.