Are your Finance Processes Adding Value?

Whatever the size of your business, finance processes are intertwined in every activity! You therefore need to make sure your financial processes, maintaining your cash flow and your tax obligations, are as robust as possible to minimise monetary and legal risks.

Financial processes should be kept as simple and flexible as possible to ensure adaptability in the ever changing and challenging business environment.

This includes minimising the risk of internal financial fraud: ensure checks and balances are in place, and that at least 2 employees always have access to particular accounts and information to ensure warning signs are not missed.

What are financial processes?

Financial processes range from the simple necessities of business to more bespoke needs for larger organisations. They include:

• Setting up business bank accounts
• Creating budgets
• Establishing accounting systems
• Reviewing accounts
• Procedures for providing credit and collecting debts
• Employee payment and expenses systems
• Online store payment functionality.

Why are finance processes and procedures important?

Clearly, without these critical processes in place a business cannot operate successfully. Therefore, in order to ensure they run smoothly and consistently, financial processes should have clear and detailed procedures written down and available to all, so that any member of staff, particularly new joiners, can find out exactly:

1. What needs to be done and how
2. Who is responsible for carrying them out
3. Who is managing and signing off the results
4. What to do and who to consult if there is an issue

Developing and optimizing financial processes

If you are a start-up, you’ll need to begin with the basics:

• Setting up a business bank account to keep track of your cash flow and provide business records for tax and legal purposes.

Creating a realistic budget that enables you to meet your financial goals, and ensuring you have a robust system for managing it. Read our tips on budgeting.

Choosing an accounting systems

Accounting or book-keeping is both a critical function for recording the financial transactions of your business for your and tax purposes and can be optimised to provide analytical data-driven decisions to grow your business further. At its best, accounting is about looking forward as well as back.

Ensure you keep tax records for the period of time required for the county your business operates and / or is registered in. Always check the specific laws for what is needed and for how long, as they vary across the world.

There are two accounting methods – accrual and cash:

• Most common and efficient is an accrual-based system, which records transactions at the point they happen, regardless of when payment is received

However, for some small businesses that mainly rely on cash transactions, a cash-based system can work. This records transactions at the time the money is paid or received, regardless of when the transaction occurred.

Optimising accounting systems

For efficiency and scalability, an efficient technological solution to book-keeping is recommended even for small businesses, given the value stated above of not only having data recorded, but also of being able to draw out conclusions to drive your business forward (sometimes called ‘management accounting’).

You should at least be looking at a set-up using Microsoft Excel, perhaps with Microsoft PowerPivot, Microsoft Access and Microsoft Power BI, while for larger business a specialist accountancy software or web-based application is likely to be needed. This is because the bigger the organisation, the better the technology will be needed in order to keep the complex accounting process smooth, automated and efficient, thus freeing your employees up for analysing the results.

In terms of employee payments, clearly you need to ensure you are working with your HR department for the best possible payroll solution. However don’t forget also about a robust staff expenses system, as these too need to be categorised for reporting and tax purposes.

In short, without a comprehensive book-keeping system, you’ll be operating in the financial dark and risk facing crises such as money shortages, fraud or tax irregularities.

How to improve finance processes

With so much at stake, it is critical to have efficient, optimised finance processes and technology. The key can be expressed in a simple mantra: ‘Simplify, standardise, automate’.

Tips for streamlining finance processes include:

1. Draw up process maps to ensure your finance function has a clear understanding of what they need to do, when and how, as well as who is responsible. Read our tips on business process mapping
2. Automate entire workflows wherever possible and monitor them in real-time to ensure they remain optimal
3. Analyse where inefficiencies are occurring in your end-to-end financial processes and improve them, whether that is by removing redundant tasks or introducing a critical missing step.

Above all, ensure you get the right advice for all these aspects – involve specialist experts such as accountants, financial modellers and tax lawyers.

For more tips, read our blog on ‘How to build a finance function you can be proud of’.