A strong finance person understands how well or poorly the business is doing and communicates that to management on a regular basis so that action can be taken as early as possible.  A strong finance person  makes recommendations on potential corrective actions.

Usual problems are listed below:

- Unplanned Surprises
- Accounting Errors
- No Financial Review Meetings
- Lacking or incorrect explanations
- Poor reporting of actuals versus budget and/or plan
- No commentary with financial results to help management understand the results.

The value of financial information is directly related to how quickly and accurately the information is reported.  Closing the books slowly, in essence, deprives the company of a month of actionable information.  Some large companies close their books in 2 to 3 days. 

Some of the common reporting problems include:

- Erratic closing times – anything more than 10 business days is considered unacceptable
- Inconsistent information each month, or issue reports separately (i.e. an income statement without a balance sheet or a cash flow analysis)
- Manual and/or inefficient closing processes
- Not providing the information the bank needs according to their definitions and timetable
- No explanation of the results (last year our biggest customer bought in July, this year he bought in June).

Many owners/members of the management team do NOT have the time or the interest to review a significant amount of financial information each month but need to be aware of what is going on as well as potential problems and opportunities as they arise.

Effective finance people can keep these individuals aware and involved by producing a short, but insightful monthly report normally referred to as KPIs – Key Performance Indicators.  They also “get out” into the functions to both understand and to help drive these KPIs to make sure the financial results are clear and tied into financial/budget goals, that the KPIs are achievable, and that they understand them well enough to serve as a consultant to the functions and monitor progress regularly.

The KPI report can be available prior to or consistent with the monthly financial reporting and is a combination of financial and operational information that reflects the “good health” of the business relative to orders, backorders, stock levels, collections, lead time fulfillment, jobs started and completed, operating efficiency measures and other goals.  KPI reporting is NOT a detailed financial analysis, but largely a recounting of “leading indicators” of the vitality of the business as defined by the management team goals.

Problem areas regarding KPIs:

- Finance does not know the business well enough to develop meaningful KPIs.
- Finance does NOT communicate within the company to have access to this information.
- Finance is unable to communicate effectively with senior management
- Finance is purely limited to what “happened” and not what will be happening.
- Finance doesn’t get out into the functions to help drive KPI clarity, results vs. budget/goals, and progress

As finance sees what a company is spending, they can help determine if that spending is cost effective and if the company is operating in an efficient manner.  Finance can highlight potential problems but needs to work with departments outside of finance.  This could be as simple as pointing out high levels of overtime to poor purchasing processes.  Significant increases in Material, Labor, Overhead, or Expenses require focus by the Controller for management team review, followed by discussion with other functions to reduce cost or help drive efficiency and process improvements.  The Controller should have cost savings ideas during these discussions.

Problem Areas include:

- Unwillingness or inability to suggest cost-saving initiatives
- Commitment to old practices whether they are efficient or not
- Doesn’t work with other departments to help identify and solve problems

Finance sees where the cash is coming in and where is it going out.  if cash is going out faster than it is coming in, management needs to be made aware of this, and a plan set up to secure additional financing before a crisis occurs.

This process is usually supported by a routine reporting and analysis of financial KPIs (Key Performance Indicators) which include – DSOs (Days Sales Outstanding – Accounts Receivable), DPO (Days Payables Outstanding – Payables), Inventory Turnover, Net Cash flow for the month, and other analytics.

Tracking these statistics on a regular basis will show trends and help predict potential cash flow shortages.

Problem Areas:

- Company thinks mainly about business without looking at the cash flow implications of routine decision making, like extending payment terms to a large customer or investing in a new product line requiring inventory or machinery.
- Company is getting larger but not generating cash for investment in business development or to be distributed to the owners/partners and there isn’t a plan to do this.
- Suppliers are complaining they are not being paid on a timely basis.
- Significant cash flow surprises occur where additional unplanned borrowing takes place putting the company in a more difficult position.

A strong financial person will look upon his banker and CPA firm as “partners” who can provide insights and services which most small to middle-sized companies can’t not avail themselves of directly.  Some financial people have an adversarial relationship with their bank or do not avail themselves of the support they can provide.

Signs of Problems:

- Continuing changes the relations – changing banks and/or CPA firm
- Inability to get additional funding
- Tougher bank covenants due to failed performance
- High fees for bank services – restatement of results due to accounting issues

A strong financial professional not only reports what happened, but also uses this information to help predict the future and recommend actions that will improve future results.

The “budgeting” process is a “critical” element in this partnership relationship. 

Problem Signs:

- No budgets or plans
- No financial goals that are communicated throughout the company
- Progress versus plan is not documented or discussed.