3 Components of a Simplified Financial Management System

Updated: Sep 25, 2020

As your business grows, you get more and more concerned about two things—regulatory compliance and relevant financial reports. You know what you need to achieve as the decision maker, but you can’t seem to figure out how to get there. You have an able Finance Team and even purchased an accounting software to make things easier, but still, you’re not getting the results you want.

Sounds familiar?

Most of the time, your frustration stems from an unstable, inefficient, or overly complicated financial management system (FMS). Okay — First, let’s clarify what FMS is.

The FMS comprises of a set of business processes where financial information is  generated and systematized into your needed financial reports. It is built to oversee and govern business resources. It instills accountability and consistency with the objective of ensuring sustainability.

To make the explanation simpler, here is how we, at Numbers that Matter, present the FMS to our clients.

Each box represents a subset of processes performed by the different departments of your business. O2C, for instance, starts with your Sales Team getting orders from customers, to your Operations Team delivering the orders to your clients. The information from this (i.e. the amount of Sales, product sold, etc.) is then passed on to the Finance Team, and as part of their R2R function, the Finance Team classifies, consolidates, and finally creates an Accounts Receivable and Sales Reports. These reports are then used for regulatory reporting of taxes and will aid the management in conducting various analyses and ultimately, in decision making. The P2P subset involves everyone in the organization–employees render services to the business and get paid through salary. That whole payroll process is part of P2P. Information about salary is then passed on to the R2R for reporting to the government and to the management.

Now you see, everyone in the organization is part of the FMS, and the different functions in the organization are interconnected to Finance. If you take a holistic view of this interconnectedness, you can understand better where your issues are coming from, and from here, generate solutions targeting these root causes. You can even maximize the information that the FMS can mine and get more comprehensive financial reports for your decision making.  All these are possible as long as your FMS is working like a well-oiled machine.

Where do you start?

Simplify your FMS. NO, simplified does not equate to easy. A FMS is considered simplified if it has the following components:

1. Consistent yet flexible Processes 2. Accountable People 3. Right Technology

Consistent yet Flexible Processes

Be clear on what your processes are and stick to doing each of it. Every organization has processes. These just need to be documented and shared to everyone. Once documented, it will be easy to implement and be consistent. Set target dates in the completion of the processes. This way, you will ensure that relevance of information is maintained.

The flow of documents should also be clear in your processes. You should be able to answer questions like—Where will the Sales Order come from; then where should it go next? Once products are delivered, what should be given to the customers? Where will the invoice go? How many copies? etc.

Ensure consistency of processes and flow of documents, but be flexible when necessary. Not everything will go as planned. Something will definitely go wrong at some point. Acknowledge that and be ready to be flexible when needed. Exceptions should be anticipated, and prepare a back-up process should there be diversions from the normal processes. This way you will avoid long disruptions in the system. 

When what has to be done is clear, it will also be easier for you to identify who you need to perform those tasks.

Accountable People

Once you know what needs to be done, you need to assign who are the people to do it and hold them accountable for those processes. Each process should have one accountable person to ensure that it gets done by hook or by crook. Remember, the FMS is an interconnected processes–a process not done in the system could lead to series of delayed processes, and consequently, to late and irrelevant financial reports.

As you’ve seen in the earlier diagram, everyone in the organization is involved in the FMS. Make sure that your employees know about it. It is important to make your people aware of their accountability in the FMS, whether they are from the Finance Team or not. This will clarify each of their expectations and may eliminate some frustrations (i.e., Sales Team frustrated why the Finance Team keeps on following up their reports, Finance Team frustrated why the Operations Team submits their Expense Reports late, etc.). Again, you need to impose accountability but first, raise awareness and clarity of the process and of who should perform the process.

To help your people perform their tasks efficiently, technology can at times be of aid.  However, take note that it should not be just any other technology–it has to be the right technology.

Right Technology

Yes, it has to be right for it to work. Is there a right technology sold out there? There is none! Any accounting software, Enterprise Resource Planning (ERP) software, Human Resources/Payroll software, etc., works almost the same way. There are features here and there that software companies would tell you, but basically, they don’t significantly differ. What will make the difference is if you use it well.

Technology, no matter what it is, has to be operated by liable people, following consistent yet flexible processes for it to work. The right technology is something that can be used effectively by your people. It should be something that can support the processes that you currently have. Deviations can be allowed if and only if these deviations can lead to greater efficiency. It should make things more productive and not complicate your whole FMS. When you have to adjust majority of your processes and spend hours and hours of your people’s time using the technology, something is definitely wrong.

That should be it.

Next time you feel uneasy about compliance and financial reports, try looking at your whole FMS. You’ll probably find a “glitch” on any of the three components above.

If you still feel you need more information about FMS, feel free to send us message.

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