Your CFO understands that businesses are at different stages of financial maturity. These stages range from having limited accounting systems to those that use an integrated system of budgetary, financial, operational and strategic information to impact decision making. The problem for business owners is that they often lack the financial expertise and leadership to move the business along each stage. In turn business owners become frustrated and the business stagnates. These stages can be summarised as follows:
PATH TO FINANCIAL MATURITY
MATURITY STAGE
STAGE 4
a.
Company utilises high level working capital management’s strategies and invests excess cash to generate short term returns.
b.
Business improvement methodology is accepted by all people within the organisations.
c.
No barriers of communication between departments, with all departments equally sharing information in order to achieve improvement targets and achieve monthly performance targets.
d.
Specific budgeting/forecasting tools with a high degree of integration with existing IT infrastructure. Data can be altered and updated almost seamlessly.
e.
A blend of performance methodologies used to create an optimal mix of techniques.
f.
Strategic business plans are broken down into day to day performance objectives which are clearly communicated, actionable and linked to remuneration.
g.
The finance team is seen as a strategic thinker, identifying areas of improvement and guiding the organisation through strategic change.
STAGE 3
a.
Majority of receivables and payables is automated. Company accurately forecast working capital requirements and integrates with longer term objectives.
b.
Company accounts reconciled on a quarterly basis, with accurate reporting produced i.e. profit and loss statement, balance sheet and cash flow statement.
c.
Specific budgeting/forecasting tools with a low level of integration with existing IT infrastructure.
d.
Financed viewed as a business partner – providing real time business support.
e.
Greater communication between departments, with departments sharing information in line to achieve monthly performance targets.
f.
Improved alignment of performance metrics and expectations however accountability is still vague.
g.
Management team seeks appropriate skills and ensures performance improvement methodology is undertaken by selected departments within the organisation.
h.
Finance staff no longer seen as a scorekeeper providing real time.
STAGE 2
a.
Greater automation of receivables and payables, but system still heavily paper based. Errors in invoicing system remain common.
b.
Company accounts reconciled every 6 month, with limited reporting through-out the year.
c.
Accounting system used to store budgets and forecasts but data is rather cumbersome with limited ability to alter information in light of changing market conditions.
d.
Improved balance of performance metrics to incorporate non-financial data but significant disconnect continues to exist between strategy and performance metrics.
e.
Departments continue to act independently, but are more willing to share chosen information.
f.
Management team experiments with a performance improvement methodology such as (ABC, TQM, Balanced Scorecard etc), but lacks the appropriate skills to implement effectively. Any improvements gains soon lose momentum.
g.
Effort undertaken to communicate individual performance metrics to employees; however, metrics are not collectable, actionable or linked to remuneration.
STAGE 1
a.
Receivables and payables are labour intensive and lack automation i.e. heavily paper based. No integration with existing IT infrastructure.
b.
Errors in invoicing system common (i.e. Incorrect totals, good shipped but invoice not sent, invoice sent to wrong client etc).
c.
Company accounts reconciled every 12 months, with no additional reporting throughout the year.
d.
No use of planning budgeting or forecasting.
e.
Use of Microsoft Excel to report financial performance.
f.
The finance team is viewed by the business owner as a scorekeeper i.e. transactions are recorded but not analysed.
g.
Departments operate independently and resist sharing information.
h.
Business strategy is not translated into performance metrics.
i.
Strategy is defined only in terms of financial numbers.
