Maximize ROI in Finance Operation
To capture a positive ROI in their finance operations, growth stage companies must address both compliance and strategic financial considerations
Whenever we think about the question, “How do we grow our company?” we must think about it from multiple perspectives. Yes, you must increase revenue / sales. We will likely have to accommodate for delivering more or different work. We may need more people, access to more resources, real estate, enhancements in logistics, etc. Foundational to all of these decisions, however, is enhancing our company’s ability to manage its finances, and our company’s finance operations needs to fit our business’s needs and goals.
In a lot of conversations, that response has to do with what might be called, “reactive bookkeeping” – meaning that financial management is mainly concerned with how much money is in AP (Accounts Payable), AR (Accounts Receivable), and how much is in the bank account. When a bill pops up, it is added to the list of what needs to be paid. When clients pay, payables get paid, which is hopefully before the payables are due.
Not much fun at all.
when you want to hire an employee, or purchase equipment or other resources. You might say something to the effect of, “when we get paid from XYZ, we’ll make that purchase.” Hopefully, unless something else has happened, once that invoice or those invoices have been paid, you go and make the investment that you are seeking.
The challenge of this approach is that it truly limits a company’s ability to operate as effectively as it can. It doesn’t support a lot of the planning, investing and optimizing activities that allows companies to get the most from their capital. Like any other resource in the company, we want to be able to leverage the company’s capital and capture a reasonable return on investment.
If you think about a bank, for example, they have a plan for getting the most return on every dollar that goes into the institution. While the dollar is a fixed amount, investing the dollar, if even for 24 hours, can result in a return. So, if that return is 1% and you do it a million times (1 million dollars) a day, that is $10,000 per day. Further, they make money with customer fees, interest on loan payments, foreign exchange (Forex) investments, etc.
If you were to invest $2,000 in a marketing campaign, you would expect to get business as a result of it. If you were to invest in hiring an employee, you would expect that that employee increases the company’s capability / capacity in a way that increases revenue and hopefully profit. If you were to invest in a building, you would do so with the expectation of increasing productivity, efficiency, and other factors, ultimately increasing profitability and perhaps increasing the company’s valuation.
Every financial decision needs to be evaluated in terms of how it will benefit the company, and we need to be able to measure how successful each investment is. You will always want to have definitive responses to the questions, “Did we accomplish XYZ in ABZ timeframe and produce EFG results?”
When referring to “The Construct,” it refers to how the finance operation is built. When referring to the Finance Operations, it is the establishment of what needs to be done and the systems and processes that are required in order to be able to produce the same results, consistently with respect to managing the business’ finance. It should also contain the “playbook” which contains the answers to the “what happens when…” evaluation.
Without going into depth in each of the areas, the Finance Operation is a system – a group of components that work together – in order to make the operation work.
With clarity on the framework for the financial operation, the next step will be to assemble the parts and pieces into a reliable system that provides the company with an advantage. It is important to start with a clear understanding of what is needed by the business in order to avoid over or under investing.
The Construct of a company’s financial operation is essential as it grows. It must be far more than bookkeeping and should not be reactionary. A reactionary approach to financial management is like driving your car by looking in the rear-view mirror. You need to have the tools to enable to you forecast where you are going and adjust quickly in order to protect the company’s interests.
Aepiphanni is a Business Consultancy that provides Advisory, Management Consulting, and Managed Services to business leaders and entrepreneurs seeking to improve or expand operations. We are the trusted advisor to those seeking forward-thinking operational and strategic solutions to help them plan for and navigate through the challenges of business growth. Learn more about us at https://aepiphanni.com or register for a complimentary discovery session at http://coffeeandaconsult.com.
To capture a positive ROI in their finance operations, growth stage companies must address both compliance and strategic financial considerations
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