Most of our clients look to us for insights on how best to manage rapid growth.

Since doing so often entails front-loading major outlays of cash, they need to know that their business is on solid footing before charging ahead.

Unfortunately, this is where the old model of finance breaks down.

In order to help clients position their growing businesses for success over the long term, I don’t stop at traditional FP&A.

Instead, the core financial statements are merely my starting point. That’s because they allow me to quickly assess a company’s financial position, but a deeper dive into the raw data is critical to gain a proper understanding of the true workings of the business.

I do this by analyzing not just financial data, but rather pieces of information from across the organization, and converting them into real-time recommendations that directly impact whether or not our clients reach their long-term goals.

This is the essence of strategic finance.

This week, I’ll be making the case for strategic finance for your business—what it is, how to make the transition, and what it looks like in action.

What Is Strategic Finance?

According to Spendesk, only 40% of finance professionals surveyed spent most of their time on value-added tasks.

This tells me that today’s finance teams, by spending the majority of their time on repetitive activities like preparing statements and closing the books, are missing a huge opportunity to move the business forward.

Strategic finance doesn’t neglect these all-important housekeeping items. Instead, the strategic approach automates much of this work so that the finance team can spend its time researching the decisions that drive performance.

To do this, finance teams work with every department, relying on operational as well as financial data to paint a more complete picture of the business.

Instead of merely closing the books, generating reports, and managing the budget each month, strategic finance teams are active problem solvers focused on reversing any issues revealed in the core reporting and translating even the most granular data from across the business into timely recommendations.

Essentially, strategic finance aims to ensure that above all else, the organization systematically plans for and meets its goals.

But this does not mean that immediate-term issues are overlooked or ignored. They’re simply dealt with on an ad-hoc basis in a way that still supports the business’s long-term plan. And sometimes that means taking a loss in the short term in order to achieve a better result over time.

Building Your Strategic Finance Function

At a high level, you can do this in just four steps.

1. Devise your long-term plan.

2. Change the culture.

3. Invest in the right tools.

4. Establish supportive processes.

Devise your long-term plan.

Before you do anything else, be specific about the outcomes you’d like to see in five years. Then quantify the resources you have available to reach those goals. From this point forward, even in the day-to-day of strategic finance, your thinking should be in terms of years, not weeks or months.

There might be some considerable gaps revealed at this stage. That’s okay. For now, focus on how you’ll use your resources—financial and non-financial—to get the business where you want it to go.

Change the culture.

Revenue-generating departments commonly see finance as less of a strategic partner and more of an enforcer/report writer.

For this transition to stick, every department needs to be bought in, and this message needs to come from the top.

In practice, you might want to set the expectation that operational decisions are to be made after consulting with finance, not before.

This step in the process might take some time, but it’s critical to get right before sinking thousands into automation and analytics. Simply put, you need to be confident that your teams will actually use the tools that you’re about to offer.

Invest in the right tools.

Empowering your Finance team to get strategic only works if you’re taking much of the transactional load off their plate and giving them easy access to data from across the organization.

There are two ways to do this. First, automate your most time-consuming tasks like forecasting and spend management, but don’t stop there.

Any activity that doesn’t require much in the way of divergent thinking from your finance team can and should be automated. Budgeting, bookkeeping, compliance, and invoicing are also great places to free up your team’s time.

Second, invest in an analytics solution that’s not only easy for all employees to understand and interact with but also allows your finance department to quickly identify trends in the raw data. This way, they can focus on proactively steering the business without missing out on the extra-departmental info that they need.

Establish supportive processes.

As with any organizational change, you’ll need the right processes in place to crystallize your gains. Some of the best ways to do this are regular cross-functional meetings focused on performance to the strategic plan, establishing a range of informal information-sharing opportunities across the organization, and protecting your finance team’s bandwidth.

Doing so not only reinforces the finance team’s new mission, but it also ensures that adequate time can be allocated to spotting key business opportunities hiding out in the raw data.

Strategic Finance in Action

Although there’s no one-size-fits-all approach to strategic finance, as your organization’s goals will be unique, here are a few examples of what making the switch from traditional to strategic finance can do for your business.

1. Transparent organizational spend.

2. Product/service portfolio optimization.

3. Shorter cash conversion cycles.

Transparent organizational spend.

Real-time spend data, either from an internally built dashboard or a managed analytics tool, allows key decision makers to know what’s being spent and the corresponding performance to budget.

Not only does this degree of visibility invariably conserve cash, but it also highlights the line items making the biggest impact on the bottom line. From there, leadership knows where to cut and where to keep investing for sustained revenue growth.

Product/service portfolio optimization.

By looking beyond the business’s overall profit margin and evaluating the organization’s offerings at the product or service level, strategic finance teams are able to assess whether individual contribution margins are sufficient to grow the company over the long term.

Such information allows decision-makers to rethink new launches, pull underperforming products, and prioritize what’s already working.

Shorter cash conversion cycles.

Strategic finance teams use the statement of cash flows as a jumping-off point to re-evaluate credit policies, streamline the collection of outstanding invoices, pay suppliers just on time, and more.

The result of this active approach to cash flow management is a shorter cash conversion cycle. In turn, that allows the organization to finance growth with sufficient cash on hand, as well as to avoid taking on unnecessary debt.

Putting It All Together

Here are your top takeaways from this week’s post.

1. The old model of finance fails to equip high-growth companies with the insights they need to ensure long-term profitability.

2. Strategic finance allows companies to make timely decisions that meet their goals over time. This is done by analyzing data from across the organization and using it to steer the business.

3. Building your strategic finance function requires devising a long-term plan, changing the culture, investing in the right tools, and establishing supportive processes.

4. Transparent organizational spend, product/service portfolio optimization, and shorter cash conversion cycles are just some of the benefits that your business can reap with strategic finance.

Hungry for More?

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2. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor