FREE online courses on Financial Management and Creating Value - Chapter 1 -
Real Financial Management
When we look at the typical financial function within an
organization, we will find a host of accounting activities: processing of
payables, customer invoicing, payroll administration, financial reporting, etc.
According to one survey, over 70% of all financial management functions are
spent on the processing of accounting transactions. Less than 20% of financial
management is spent on "real" financial management, things like performance
measurement, risk management, forecasting, strategic planning, investment
analysis, competitive intelligence, etc. All of these things are where real
value comes from. Therefore, one of the first steps for financial functions to
take when it comes to creating value is to move out of the traditional
accounting box and into real financial management.
The overall goal is to move into more value-added type
activities, things that have an impact on improving company performance.
Adopting a set of "best practices in financial management" can help transform
the financial function into a driver of value. Best Practices refers to
organizing the accounting and finance functions into a decision support function
for the entire organization. Best Practices can encompass many things, such as:
- Organizing around results, such as quicker
closings through soft general ledger closings.
- Processing data only once in order to reduce cycle
times.
- Structuring data so that it provides information
and doesn't just occupy storage space.
- Leveraging people and technology to improve
transaction processing. This includes all kinds of applications - electronic
payroll processing, purchase credit cards for payables, electronic data
interchange, etc.
