As successful companies grow over time, certain systems — particularly within the finance function — are often overlooked. Multiple software applications are pieced together in order to extract and maintain data. Processes become redundant in order to get information into these various systems, and precious time is wasted along the way.
Running a lean finance department requires occasionally stepping back and taking a fresh look. Here are six areas to evaluate:
- Accuracy of the information being generated. Take a look at the completeness of your information or the number of adjustments being posted in any given period.
- Timeliness of information being prepared. Consider the speed at which the department generates internal financial statements. Well-run organizations will be able to close their books at the end of each month within five business days. But anywhere under two weeks is a pretty healthy indicator.
- Effectiveness of internal controls. The internal control structure has a lot to do with how personnel are allocated within a department. In a smaller organization, some level of owner oversight or involvement is a good way to mitigate risk.
- Overall quality of the reports. The quality of the reports involves the type of information being provided on a monthly basis. Look for key performance indicators or other types of dashboard reporting in addition to a simple balance sheet and income statement.
- Efficiency of technology. Evaluate how well your business is using its systems, and if it is making sufficient use of them.
- Sufficiency of personnel within the department. The personnel aspect has to do with not only staffing levels, but also the overall quality of your people.
When looking for ways to improve the efficiency of your finance department, we usually suggest starting with your end users or information recipients and understand what they need. It is senseless to create reports no one ever uses just because that is the way it has always been done.
Second, take a hard look at your technology to see if there are features or software modules that are not being used or are being used improperly. There may be some real opportunities to improve functionality without having to make major investments in a new system.
Finally, take a close look at your personnel. Evaluate whether you have enough resources or you need to make some changes.
At what point can you consider your department to be running lean? Simply put, you will see it in the results of your business. Well-run departments are able to improve turnaround time of financial information and drive improvements throughout other aspects of the business. The only way to track improvements is to make them definable and measurable. Then you can compare your company to your own past performance, to peers, and to other well-run companies.