One hundred years ago, the period historians came to call the “Roaring 20s” saw the rise of crazes like flappers and the Charleston, along with a huge boom in consumer spending on goods like home appliances and radios. Today we’re on the cusp of a new roaring 20s - one with unprecedented potential for business expansion, acquisition and other growth opportunities. Making the most of those opportunities tomorrow depends on the budgeting and planning you do today.
Roaring ahead with modern, agile finance leadership
For the proof behind the potential, just look at the data in the BDO: 2021 Middle Market CFO Outlook Survey, where finance leaders indicated how optimistic they are feeling about the coming economic recovery. Already, 40% said their organizations are “thriving,” and 62% said they expect to be thriving by the end of this year.
There was a similar mood among those recently polled by the CNBC Global CFO Council. Not only was sentiment positive across every region, but the data suggested finance leaders haven’t been this confident since 2018.
As conditions continue to improve, finance departments have an even greater opportunity to align their budgeting and planning with their organization’s priorities and objectives.
Businesses will be eager, for example, to capitalize on the economic recovery by investing in the development of new products and services, or to expand into new markets through mergers and acquisitions.
Achieving those goals will require CFOs to improve their ability to budget, plan, forecast and report on results. By building greater efficiency and agility in finance, the rest of the businesses will be in a better position to innovate and execute on the corporate strategy - and take advantage of new opportunities as soon as they arise.
The mid-market advantage
The potential here is by no means limited to large enterprises. In fact, our customers in the mid market — most in the $100M-$3B annual revenue range — stand to benefit the most from a 2020s boom period.
This is in part because, as a recent article in the Harvard Business Review pointed out, mid-sized firms face less of a bureaucracy burden than their enterprise counterparts. Rather than management working as an insular group, mid-market companies tend to have a closer relationship with experts and specialists who can inform and guide the company’s direction.
This means mid-sized firms can prove nimble and accelerate decision-making by acting on what their data tells them. And by budgeting and planning today to make quick, smart decisions tomorrow.
There’s one caveat to this, though: the move to data-driven finance starts by having the right tools in place to manage otherwise onerous and time-consuming processes.
Fortunately, businesses are stepping up to address those needs.
Tools and takeaways for mid-market finance leaders
Market research firm Gartner forecasts worldwide IT spending to grow 6.2% in 2021, a huge leap from last year’s 3.9% decline.
More significantly, the biggest uptick in spending is on enterprise applications at 8.8%. Beyond marketing and service tools, this includes software that can help finance leaders grapple with budgeting, accounting and planning.
Then there’s the COVID factor. Additional research from Gartner found the pandemic actually accelerated investments in digital transformation, but not without new demands on the finance function. From reforecasts to cash flow modeling, timelines have shortened from quarters and years to a matter of months, weeks or even days.
All this sets the stage to take a step back and evaluate your approach to budgeting and planning, and whether you’ve got the right FP&A software for the job. To evaluate both effectively, consider how your finance team can move the needle on three critical business success factors:
- Improved cash flow management
- Capturing data from across your business
- Delivering timely, insightful management reporting
Let’s go into each of these in detail.
Cash Is Still King
The emphasis on managing liquidity never became more important than in 2020, when organizations around the world had to ensure they could contend with unexpected and urgent financial realities.
You might have had longtime suppliers suddenly asking for payment upfront before orders were fulfilled. At the other end of the spectrum were customers who hoped for deferred payment options, or greater flexibility in the terms and conditions around fees.
Even if you're feeling more bullish about 2021 and beyond, the demand to balance cash flow to meet daily obligations and adapting to changing conditions isn’t going away.
Consider the alternatives for failing to stay on top of cash flow. Reducing external spending, cutting capital expenditures or dividends are not only painful to the organization, but makes it more difficult to move forward when new business growth opportunities arise.
Instead of simply getting cash management under control, consulting firm McKinsey recently proposed that CFOs should aim to establish a culture of “cash excellence.” In other words, to develop your processes, structure and people in such a way that you’re always on solid footing, regardless of where you have to move next.
I realize this isn’t as easy as it sounds. First are all the potential variables such as interest rates, available credit and access to capital. Having visibility into all of them is a job in itself, let alone projecting what they might look like down the road.
This explains why cash flow forecasting is one of the top four criteria businesses are using when selecting new FP&A software, according to a report from BPM Partners called Managing Uncertainty with Confidence. It’s not just a matter of cadence, but being able to forecast in detail and model what-if scenarios.
A report from the Center for Supply Chain Research at Lehigh University (CSCRL) provides additional insight into what one of the biggest sectors in business hopes to achieve through digitization.
The year-long study of more than 125 North American firms found 80% of the respondents said they would increase their cash forecasting frequency if reconciliation times were improved. Nearly one-third of the respondents also said they would move from monthly to weekly cash forecasting if the process were more digitized.
As you begin this particular area of digital transformation, opt for an FP&A solution that lets you report cash on hand in real time, and quickly forecast based on all likely market conditions. Make sure you’ll also be able to calculate cash flow using the direct and indirect methods (for internal planning and financial reporting, respectively).
Don’t Be Late . . . Integrate
I realize, of course, that there may be a hesitation to introduce new technology when you’re struggling to make sense of data that’s already collected, stored and managed as though it existed in separate fiefdoms. Fortunately, readily available tools make it easier than ever to capture these data and put them into context - within your finance department, across your organization and beyond.
Let’s look at your finance department first.
On one side is the accounting group, with its own, time-tested and trusted tools for keeping track of your past performance numbers. On the other side sits finance, which has been adopting more sophisticated analytics tools to produce actionable, forward-looking insights.
No one may ask you to do this directly — particularly those whose day-to-day activities might change — but your job as a finance leader is to call out those silos and bring them together. The BPM Partners report acknowledges as much: 62% of companies said they need consolidation to be an integral part of their budgeting and planning process.
Think about how we’ve already accomplished a similar feat in our consumer lives. At one point the only way to tell the time was by wearing a wristwatch or looking at a clock. If you wanted to listen to music, you needed a CD player or specific hardware that handled MP3 files. Your television was still your main way to enjoy TV shows or movies.
Today, the average smartphone builds all those capabilities into one. That means you can do multiple things at once, or simply focus on what’s important to you instead of managing different pieces of equipment.
Building a modern finance department takes the same approach to data. Instead of sifting through separate applications for real-time actuals and forecasts, they should be in the same “single source of truth.” The same logic applies if your budgeting and planning tools are disconnected from those you use for financial close and consolidation.
Breaking down the silos within finance won’t mean much if the finance department is siloed from other business functions, though. What happens in sales will have a huge impact on how you’ll interpret financial results as a CFO. So will the data coming from systems that run marketing and customer service.
Many ERPs, CRMs and marketing automation systems weren’t developed with CFOs in mind. Which is a shame, since it’s finance leaders who now play a lead role in giving management a clear, complete picture of company performance.
You don’t have to become a technical expert in application development to determine what you need. Just ask yourself what the tools you’re considering can give you in terms of storytelling capabilities.
To what extent can customer satisfaction data indicate the future sales of your products and services, for instance? How might campaign data inform the budget you allocate towards the marketing department? How can you tie together operational data from ERP to business key performance indicators (KPIs) that speak to productivity?
There’s one last silo to consider: the one that sits in the outside world. I’d suggest talking to your trusted vendor partners about their ability to incorporate not only cross-functional data but external market intelligence. Examples here could include ,everything from interest and foreign exchange rates to customer sentiment and COVID vaccination levels.
Greater Agility With Reporting Capabilities
If I had to define agility in the context of finance leaders, I would say something like, “Think fast, and act just as quickly.”
Of course, you also have to take the right actions, while also anticipating the next best actions you should take in the longer term. Complicating this is the fact that you’re not necessarily pulling all the levers to do this yourself, but bringing your voice to a larger executive discussion.
This is the essence of management reporting, but it’s not just about passing along a summary of stats. It’s really about conveying facts and figures in a way that tells a meaningful story about where an organization has been, and where it could go next.
Already, two thirds of companies surveyed by BPM said management reporting is a primary driver of new FP&A technology. These are finance leaders who have recognized that the conversation in the boardroom is changing rapidly - as is their role in guiding it.
They might be asked by the CEO and others what will happen if interest rates rise by 50 points, if the dollar drops 5% or if pandemic vaccinations hit target levels 3 months ahead of schedule.
Other questions might be more granular and domain-specific. In other words, you might need to tailor reports or dashboards to specific audiences like the head of sales, the CMO or the COO.
The reporting you’ll do in 2021 won’t be limited to financial data, either. In its most recent U.S. CFO Pulse survey, PwC found 69% are prioritizing an ability to coordinate environmental, societal and corporate governance (ESG) data as part of their reporting mandate.
Make sure your search for FP&A software looks at any built-in data visualization or BI features, or how you might be able to connect to popular applications such as Microsoft’s Power BI.
The Roaring 20s ahead of us will undoubtedly look a lot different than the one we experienced in the twentieth century. Our world has changed so much in the last 18 months alone that we’re a long way from the Jazz Age.
Like the best jazz musicians, though, your success as a finance leader will be based upon your ability to take what you hear — a wide range of financial and non-financial signals — and help your organization improvise intelligently.
Improvising doesn’t mean you’re making things up as you go along. It’s about training yourself to respond in a fast and agile way, even when changes seem to come out of nowhere.
The right FP&A software can help you do that, as long as it helps you accomplish three things:
- Producing detailed, frequent cash flow forecasts
- Capturing qualitative and quantitative metrics through well-integrated data
- Delivering timely, insightful management reports with ease
Do all that, and the roar you hear through the rest of the 2020s might be a cry of victory across your organization.