Don’t Fall Short of Your Financial Responsibility

Picture the scenario. A new client comes to you looking for a technology solution or software tool to help them mitigate their processes and essentially, make business more efficient and profitable, giving it a chance to grow. But the client’s senior management team has creative differences—whether from a project management or a financial point of view—and does not provide you with a clear-cut path of what they are trying to accomplish, i.e., what the end result should be. Sound familiar?

While we can’t pinpoint how often such a situation occurs, the problem is existent nonetheless. Of course, financials and how quickly a company can gain ROI on their investment are big factors in such decision-making processes. As such, leadership must have a defined structure to mitigate such actions and decide who has the responsibility to set budgets and approve or deny such technology-investment decisions; who controls payments; and where does the financial strategy of the company really lie.

“When you think of small- and medium-sized businesses, many times employees start off in one role and as the company develops they get more responsibility and things get a little bit more complex,” explained Bob Cohen, Vice President of Marketing, North America, Basware. “Once you start aggregating deals and your company starts growing, there is more data and there are more groups that get involved and it becomes more difficult.”

In fact, a number of small- and medium-sized businesses (SMB’s) agree that there is a mixed sentiment towards financial decision-making, as 53 percent of small businesses and 59 percent of medium-sized business owners confirmed that such responsibilities lie with senior management. Yet, one in three senior managers admitted that they are unprepared to take on the role, according to Basware’s SMB report findings.

So what gives?

“Many of the managers of small businesses have grown,” said Cohen. “And the companies have grown beneath their leadership so now they have responsibilities for things they were not classically trained in. So now all of a sudden, they find themselves questioning ‘what are the key levers and metrics that they are supposed to be looking at? How does procurement and finance work together?’”

Examine your financial leadership structure

As companies look to define such questions to grow their business and make sound investment decisions, they must also understand the necessary investment not only in processes and technologies, but within their own people as they grow.

“As a company grows, the skill-sets and needs of those people who started the company change—and that is where they are unprepared for this,” continued Cohen. “We see that quite a bit. But it’s not so much that senior management is unprepared to handle their responsibilities—although they may be—but it also may just be that they don’t have the visibility and access to the data because it’s all kept in different parts of the organization. So they don’t understand what the implications of the contract or the sourcing has upon the actual purchasing. And then, when you move it downstream a little bit to the actual accounts payable, the two are in different silos so they don’t know what their obligations are until it is too late or until they are due. Most companies—small, medium and probably large to a great extent—don’t understand what is being purchased or what their liabilities are after that purchase has been made.”

Not surprisingly, 33 percent of those higher up on the corporate ladder within a business in the U.S. and 28 percent in Europe do want greater understanding of how to manage company money, according to Basware’s SMB research. Despite that, only 45 percent of senior managers have yet to receive formal financial training while 57 percent of board members remain untrained, according to the survey respondents.

“If companies have visibility across the board, they know what is being contracted and when it is being purchased—and they could plan for how best to finance that and pay for that purchase,” Cohen continued. “That would provide them with greater ability to manage the business in a better fashion, whereas right now, the CFO probably does not know a whole lot about what purchasing is doing. So that is where they are unprepared in smaller companies. Whereas in large organizations, the problem that they run into is that lack of visibility across the board—the finance, purchasing and procurement aren’t talking to one another so no one really knows what the other hand is doing.”

Mitigate your processes to grow

Suffice to say that financial responsibility must be clearly defined for a company to improve control of their investments and grow, regardless of what size within the SMB scope you are in. Key findings from Basware’s SMB report point to 1). Company spend rules and regulations; 2). Rules on company spenders; and 3). The desire for spend authority, as three main factors of controlling financial expenditures.

 

  • Just 18 percent of organizations in the U.S. said that expenditure was controlled by departments and functions, compared to 44 percent in Europe
  • Only three percent of employees in the U.S. say they are not allowed to spend company money, compared to 38 percent of employees in Europe
  • Approximately 21 percent of employees in medium-sized businesses across all regions say they would like authority to make purchases in their own field versus 14 percent in small and six percent in micro businesses

 

Whatever the case may be, businesses must define clearer financial strategies for their executive leadership, enabling them to succeed at their role today to grow the company forward.

“Culturally, things will change in an organization as baby boomers move up and new blood comes in,” said Cohen. “Now, those within procurement and purchasing are looking to do things a little differently to identify ‘where else can we automate? Where else can we obtain savings and provide better visibility into what is going on?’ And that is through these areas—through automating the entire procure-to-pay or order-to-cash process and digitizing or receiving things electronically,” he concluded.

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