Explained: how finance professionals can become business partners
Afrimat CFO Pieter de Wit says finance professionals must embrace technology to free up their time.
I recently participated in a podcast, and one of the first questions I was asked was: “Finance is not just the rating and reporting of history. It's a future-focused job. How do you look ahead rather than backwards, and work alongside the business as a partner?”
My answer was this:
“We are no longer a bunch of accountants hidden in a back room somewhere, recording transactions and reporting historical financial figures. We are a strategic business partner, fully involved in setting the direction of the organisation.”
But how do we practically achieve this? This spurred me into writing this piece to share my thoughts on this complex issue.
As background, before I was appointed CFO of Afrimat, I took on an operational role, heading up the group’s KZN and Free State businesses. Only then did I fully realise the importance of having a financial background or the support of a good financial manager – pretty much every decision you make has a financial implication.
It is at this level that finance can play a vital role and influence the business as a strategic advisor – by helping senior executives understand the cost implications of their choices, you help them to make informed decisions.
Another essential component of being a trusted business advisor is that the finance function must cover a broad range of management information – it can no longer simply be responsible for the income statement and balance sheet. The drivers behind any material income and expense item should also be fully understood.
Here’s a good example: it was of very little value to our business to report an increase in fuel expenses year-on-year without supplying information in respect what caused the increase, namely primarily the fuel price and consumption. Whilst it’s fairly easy to provide management information on the fuel price increase, consumption is altogether more complex.
Appropriate systems and controls are now in place to ensure we manage both how fuel is delivered as well as how it’s dispatched. The fuel consumption for each vehicle is also monitored to manage overall fuel consumption effectively. It’s this level of detail and the collection of appropriate data that’s critical to understand in respect of every single material income or expense we have.
To be a trusted advisor to the business, a successful CFO or FD must also understand the risks, the markets, and the regulatory frameworks, as well as the different alternatives facing the business. You can’t afford to operate purely within the finance role. You must be commercially and strategically minded.
A fine example is that you can’t merely report a decrease or increase in revenue year-on-year or against budget without understanding the commercial aspects of the product or service being sold, as well as the business’ strategic positioning.
Can you answer the questions as to why customers buy the product or service, what the competitive advantage of the product or service is, and what the alternatives or substitutes available to the customer are? Also, are there any pricing or additional volume opportunities to increase revenue? What is the likelihood of and impact on the business of losing any particular customer? Which industry does your customer operate in and what is the current economic environment facing that industry?
Third, finance must embrace technological innovations, such as robotics processing, AI, data analytics and predictive tools. Technological innovation has made it possible for us to be more involved in setting the strategic direction of the business, because a lot of transactional work, previously performed by the function, can now be done automatically, freeing up time to focus on what are, in my opinion, more critical elements than solely capturing the numbers.
However, a word of caution here – you can easily get caught-up in the technological changes and trying to understand which will add value to the business or which will end up incurring cost without necessarily adding value. This is something you need to work through. The use of technology and the role that finance plays within any organisation will also change in relation to the growth and maturity of the business.
When Afrimat listed 12 years ago we did not have a single ERP system but relied instead on various small accounting packages, and it would have been difficult to implement data analytics at that stage. After we implemented a single ERP system, we added a business intelligence tool, QlikView.
Afrimat has grown so much over these past 12 years through acquisitions and greenfield projects and is a lot more complex, but now we have a system in place that can effectively deal with the complexity and growth and provide us with valuable data. Make the right decisions for your business at the right time, and in my opinion, you won’t regret it.
Finally, to remain relevant in a changing environment finance can’t just be a “cost centre” – it must add value to the business. The simple truth here is that to add value you must understand the business to identify opportunities to add value.
Another example: Afrimat had several insurance brokers and policies in the past and so didn’t fully benefit from economies of scale. Finance identified this as a problem, and we have since merged brokers and policies, which not only reduced our risks, but resulted in a substantial cost-saving.
The days where a finance professional only needed accounting, financial and analytical skills have long gone. One needs softer skills too. As a CFO or FD, you must have leadership skills – your team won’t respect you if you expect them to stick to deadlines while you don’t. You also need to realise that you need a team to succeed; one person can never do all the work. It is therefore imperative that you have good communication and people skills to foster team relationships.
You also need to cultivate a positive culture through teamwork, integrity, trust and respect for one another. A positive culture will result in an engaged working environment and so give rise to innovation. Everyone should be comfortable enough to challenge the process. By challenging the process, the team can identify more efficient ways of performing their tasks.