The Modern finance unit – a shift from book keeping to business advisors

February 7, 2017 (2 weeks ago)
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In the late 1990’s, it was easy to be identified as an accountant in a typical accounting office. Your interactions would be rigid, procedure driven and very stiff.

Accountants’ desks were full of reports and papers – what was popularly known as ‘ledger books and the department would go by the name accounting or back office in some organizations.

Fast forward and times have changed, with your modern accountant being younger and more tech savvy. The accounting office has now metamorphosed into the finance unit due to a role change, now dealing more with aspects of technology, treasury, funding and tax matters.

Finance departments are mandated with the provision of financial information, cost control and efficiency, forecasting cycles, statutory compliance and bank relationships among others. These units are central to most organizations.

The finance unit has excelled at giving historical data and past trends based on the financial information that has been recorded over years. Trends certainly form a basis of making future plans which is key when it comes to making significant business decisions. To be more strategic, the modern finance unit must go beyond giving historical information. Businesses need more insights to be better prepared in the dynamic business environment. The complex nature of business today demands that organizations should have accurate, relevant and timely information. This information will enable the business leaders’ peer through the curve and anticipate any unforeseen occurrences. “This came as a surprise to us” is not a phrase that business managers want to hear.

Budget formulation is an important process and is a reflection of an organizations long term strategic intent. At the core of this process is the finance unit which takes on a lead role. For a solid budget submission, key budget parameters, performance indicators with benchmarks must be clearly articulated.  This is an opportunity to not only be the custodians of the process but to also step up and provide strategic input to the other business units. This helps achieve a holistic approach since they have an eye on every aspect of the business.

In the past, cost control and management were the primary focus of the accounting function. When businesses would undergo challenges, one key area of focus was to cut costs. However, times have changed and the focus should now be on creating value rather than just controlling cost. Value creation in business is about embedding efficiencies that make processes flexible, simple, seamless, yet very effective in the business environment. An example is taxi travel cost. In the past you would probably have a voucher system that required preapproval, presented to the taxi operator, presented back for processing and payment. With introduction of web based applications, a forward looking finance unit would easily integrate such efficiencies into their business process. A mindset shift is therefore required focusing on creating opportunities for transformation that drive efficiency and value. The digital transformation present solutions that keep costs in check and help harmonize operations across business units. Embracing technology will be a game-changer as this brings greater efficiencies in the business.

In most organizations, almost all decisions tend to have financial impact. Key investment decisions, business transactions, resourcing and many more all require an element of financing. All business operations have to be well funded so as to meet the core objectives of the organization. The finance unit holds the ‘wallet’ in an organization, a critical element is who controls and how well is the control of the ‘wallet’. Cash flow management coupled with prudent treasury management in light of competing cash business priorities forms part of this control which the modern finance unit must do. This ensures seamless operations as funding based on priorities is done and all functions run efficiently.

There is increased stakeholder demand and complex business operating models which come with increased risk. Regulatory frameworks with more requirements continue to be introduced in the business environment. Non-compliance is a costly affair and cannot be not be accommodated as it could lead to heavy penalties and reputational damage. The finance unit therefore needs to be dynamic, agile and very responsive to the ever changing business environment with compliance being of key focus.

The finance unit must be alive to business needs to remain relevant. With technological advancement, the routine accounting aspects of data entry may be automated in the future. In order to be relevant, they must go beyond the numbers and always challenge status quo. The future is about being strategic, insightful, technologically inclined and commercially being a business partner in the business.

Joseph Nzou is the Head of Finance at PwC Kenya

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