Financial Management Tools That Strengthen Your Company and Create Value
Expanding businesses that break growth barriers often credit a successful product or innovative service for their success. Few companies experience solid growth without a well thought out market strategy and sales execution. Equally important is maintaining strong financial management tools that enable you to monitor many facets of the business, from payables to receivables to investments made with excess capital. These financial management tools can help accelerate collection of receivables (improving cash flow) and assist you in using existing cash flow to pay suppliers. You can sleep soundly at night knowing your investors and lenders feel confident in putting their capital to work in your company.
Financial Management Tools Check List
Experienced leaders understand the importance of effective financial management systems. Your company can impress lenders, business partners or a potential acquirer with five financial management tools. Use this guide as a checklist of some key financial tools that may help to strengthen and make your financial processes more efficient.
Five Important Sets of Tools:
- Cash Position Management
- Accelerate Receivables
- Control Payables
- Manage Expenses
The analytic tools your company uses to track data and distill it into financial Key Performance Indicators (KPIs) are of primary importance. In recent years, companies have witnessed an explosion of data spanning markets, customers, operations and detailed financial transactions. The name “Big Data” has come to represent the amount of data, easier means of collecting it and tying it together and the strategic importance of putting this data to work. Producing reports is one thing; being able to articulate the implications of those detailed snapshots on your company’s bottom line and being able to communicate them across the organization are the true tests of financial sophistication. Key tools and sophisticated financial approaches include:
Turn-key banking products that help your Reporting and Analytics
Online information reporting tools, most with instant access to detailed information on daily financial transactions across multiple platforms, provide robust support for reporting and analytics. From simple online banking, to more integrated Treasury Management systems that provide customized reporting and transaction detail, your bank can provide a host of reporting and analytic systems to support your specific needs.
- Automated reporting and business intelligence systems assimilate information from disparate systems into an integrated real-time view of financial and business processes. They often use Enterprise Resource Planning (ERP) systems as a backbone. ERP systems can be customized to your business specifications, consolidating any element of financial and management accounting (general ledger, payables, receivables, budgeting by P&L centers, etc.), human resources (payroll, recruiting, 401K), manufacturing (inventory, work flow management, cost control) and Customer Relationship Management (CRM) data. Business intelligence features, such as dashboards that graphically display specific KPIs at a glance, can also be programmed to improve decision making and provide data on the fly. As a whole, this automated reporting enables the management and finance teams to spend less time on the details of core business process reporting and more time evaluating opportunities.
- Continuous budgeting allows companies to make decisions based on real data and current market conditions with up-to-date assumptions. Business intelligence and ERP systems themselves can assist in providing the data necessary to transition from annual to planned monthly or quarterly budgeting.
- Break-even analysis indicates exactly what level of sales your company needs to fulfill obligations and sustain operations. More advanced planning techniques apply break-even analysis to scenarios that game different levels of external conditions (raw materials cost, labor costs, economic conditions, etc.) and business strategies for your company.
- Audited statements provide an objective third-party assessment of financial statements and provide a level of confidence and credibility in company financial statements.
- Online information and reporting tools offer visibility into detailed information on daily financial transactions across multiple platforms.
- Inventory management systems helps keep inventory levels in check, reduce carrying costs and pinpoint obsolete items in need of liquidation.
- External industry analysis for your industry segment or marketplace helps you understand the future of the industry, emerging competitive issues and top groups with whom to benchmark and share data.
Strong cash management capabilities reflect a financial team’s understanding of the forces that move cash through an organization and the levers that they can use to match cash needs with business conditions and operating needs. Visibility into cash flow, control over its movement and predictability over its levels are minimal expectations for all except early stage companies. While there are a host of modeling and reporting solutions, several useful tools to help your company maximize its cash on hand and demonstrate financial knowledge include:
Turn-key banking products that help your Cash Position Management
Enhanced cash position management is easily accomplished with products like zero balance accounts which automatically pool funds into a single account at the end of each day, reducing idle cash and allowing for easy transfer into overnight investment vehicles or controlled disbursement systems which provide early, same-day reporting of all checks presented for payment so that your finance department knows exactly how much money to transfer to the disbursement account, avoiding overdrafts and allowing investment of any excess funds.
- Implementation of a CFO-CRO partnership brings a more effective, integrated approach to risk management. A close partnership between Finance and Risk helps steer the business to achieve better risk-adjusted returns and more alignment of strategic goals - leading to actions, such as the elimination of high risk business practices or even exit from a high risk business. Working together, CFOs and CROs can also more effectively manage redeployment of resources to exploit new opportunities of growth and sustain improved profitability.
- Advanced Cash Planning positions your company for better rates and opportunity for your future needs. Forecasting expectations of when the business will need cash in the future, then negotiating 12 to 18 months in advance will achieve more favorable rates and investor quality for future expansion or cash needs.
One of the key ways that companies can maintain a steady stream of working capital is to improve the performance of their collections and receivables. Days Sales Outstanding (DSO) is an important metric for increasing overall efficiency in a business’s receivables cycle because it measures the receivables process over time, identifying areas for improvement across the organization. Processes that improve DSO ultimately improve cash flow, a prime indicator of financial stability to your organization, investors and lenders. A total picture of receivables velocity can help determine cash flow needs and possible financing options. The following are typical electronic receivables systems that provide quicker access to funds and streamlined processes.
Turn-key banking products that help Accelerate Receivables
Accelerating your company’s AR functions can be accomplished through systems such as Automated Clearing House (ACH) debiting which speeds up collections, e-commerce that allows acceptance of virtually any payment type, making it simpler for your customers to purchase your products and services, or wholesale lockbox which offers faster access to funds and a cost-effective alternative to processing high-dollar checks in-house manually.
- Automated Account Receivables (AR) functions, through a CRM or ERP system, organize invoicing and improve accuracy. Automated AR helps eliminate mistakes and ensure all information is accurately attached to invoicing, including PO numbers, which studies show is the number one reason for delayed payment.
- Enforced payment policies accelerate receivables through pre-negotiated terms that assess interest and late payment penalties on a consistent basis. Involving and educating your sales force on the necessity of imposing a consistent and fair term policy will help support your terms and politely send a message to your customers that delayed payment is not an option.
- Implement credit rating segmentation by placing customers into categories based on payment history. Assign different terms for each segment, with more attractive options for quick paying customers and incentives to improve slower payers.
- Evaluate potential for accelerated invoicing to start the payment process moving earlier. Point of service invoicing, electronic email/messaged invoices, sales contract triggered invoices and online bill presentment are all ways to get the invoice to the customer faster in order to start the payment cycle faster.
- Outsourced billing services reduce your company’s operating expenses while achieving higher collections rates and generating better cash flow through turnkey paper and online bill delivery and payment services
Your Accounts Payable (AP) department can affect your company’s cash flow and bottom line profitability while serving as a key indicator of how well you marshal cash. AP management efforts include electronic funds management, shifting payment terms or vendor relationship management. Smart management of how and when invoices are paid allows the finance team to better predict cash availability and adjust capital needs accordingly. Advanced yet readily available payables tools include:
Turn-key banking products that help Control Payables
When it comes to payables, your banking partner can provide efficiency and streamlined processes with ACH payments which cost less to process than checks and provide increased payment flexibility by controlling when the electronic payment is made, thus providing better predictions of cash availability. Integrated payment processing systems are available that combine all payables onto a single platform, providing a single payment stream to manage and streamline.
- Improve Days Payable Outstanding (DPO) by ensuring the correct personnel, with appropriate knowledge and external/internal data, negotiate with vendors and sets payables terms and goals. Creating a strong partnership between finance and purchasing to give your employees a stronger incentive to negotiate for the best terms, analyzing terms for your high frequency vendors as well as dividing vendors into categories to create specific payables goals for each can also promote accelerated DPO.
- Automated payables make the AP function much more efficient and predictable by lowering invoice processing costs and reducing expense posting cycle times. Moving toward a paperless processing environment by automating the following functions can improve overall payables and procurement performance:
- Invoice scanning
- Electronic invoices
- Electronic payment
- Automatic PO generation
- Electronic approval
- Electronic Payments can reduce processing time and streamline reporting with real-time access to consolidated payment data, overall spending and invoice level data with each payment. Paying vendors and suppliers electronically can also improve process efficiency by eliminating or reducing paper based checks as payments and improve vendor/supplier payment timeliness and accuracy, thus reducing costs associated with payment errors and late payments.
- Procure-to-pay offers control and transparency from order to final invoice processing by integrating AP and purchasing to create one smooth process with checks and balances to maximize return on invested capital.
- Vendor management negotiating for better pricing, longer payment terms and invoice discounting helps keep costs under control while meeting pre-assigned business requirements. Smart companies have prompted competition between vendors, built preferred vendor relationships based on volume and pricing, requiring employees to visit only those preferred vendors, further assisting in management of expenses.
Even the most disciplined company can find itself challenged by expense management, particularly with the complexity of adding multiple locations, expanding its employee base or investing in substantial upfront development or in manufacturing setup costs. Businesses that aggressively manage indirect and services spend can realize significant savings on a large portion of their variable monthly expenses. Organizations that continuously evaluate every process and interaction can achieve greater efficiency and lower costs. A number of tools support this elimination of waste culture.
Turn-key banking products that help Manage Expenses
Your bank can help you manage expenses through the use of commercial credit cards, purchasing cards, and integrated spending platforms, all of which control, amalgamate and streamline company-wide expenses while reducing costs and uncovering opportunities to improve efficiency and savings.
- Spend optimization creates a culture around expense management with a focus on cost efficiency and accountability across the business. This may include elevating the procurement department to a strategic position in the company structure, which allows the team to creatively consolidate procurement efforts, collapsing and aggregating purchasing across business lines and/or facilities.
- Strategic outsourcing allows your business to stick to core competencies by outsourcing functions that are not directly focused on your bottom line. Advances in cloud and Software-as-a-Service (SaaS) vendor systems now provide more cost-effective solutions to mid-size companies looking to outsource HR, PR, Legal and Payroll functions.
- Procurement outsourcing consolidates procurement processes based on category (IT, HR, Marketing, etc.) and project or outside vendor to realize economies of scale and reduced internal personnel costs
- Improve employee financial literacy to lift the overall business to a more fiscally focused enterprise. Sharing financial information, processes and policies outside the “C-suite” provides more buy in and knowledge. That might include exposing the sales teams to scenario planning around sales margins and revenues levels needed to breakeven. It could involve the facilities management team in capital planning exercises showing that suggested infrastructure improvements will have to wait until cash flow strengthens. A financial education program could link employee-controlled expenses related to service quality, absenteeism and health care costs to the company’s overall finances and profitability.
Make your business stronger with financial management tools
Your financial “resume” and the level of financial management sophistication your company displays bear directly on its value as measured by investors, lenders, appraiser and purchasers. Anyone evaluating your company will want to see your financial systems, understand the accuracy of your projections, assess your leadership’s understanding of the business’s financial drivers and judge their appreciation of business risk. The financial management tools in place at your business will telegraph your level of financial competence to external players, but you will also benefit from having more sophisticated tools that will help you manage your business and put your resources - cash, labor and more - to best use.