The most under appreciated business risk for SMEs is placing disproportionate responsibility with the finance department.

The finance department is a cornerstone of any business. Not least because of statutory accounting requirements but often because they are the custodians of cross-business information and reporting processes. Finance teams usually become the point of data consolidation from multiple subsidiaries. Depending on the business systems available, they also process the extraction and transformation of data between applications for financial and management reporting. On a weekly basis I meet with companies in EMEA having strikingly similar challenges. I have seen the notion of the “gates of finance” at many companies, all data arriving and being orderly accounted for and reported on, often using a plethora of Excel spreadsheets and healthy dose of caffeine.

All of the above might be considered the ‘status quo’ for many businesses. A busy and reliable finance team could rightly be perceived as an asset to the business. However, my argument in this article is that in the same moment, the disproportionate responsibility of the finance department could be the most underappreciated business risk for the following reasons.

• Opportunity Cost of Time: If finance efforts are focussed disproportionately on the day to day operations, this reduces time for data analysis and strategic thinking.
• Burnout/ Employee Attrition: Overworked employees in such a critical position risk leaving the business.
• Change Management Difficulties: Unbalanced responsibilities mean other departments can be accustomed to having activities or processes completed for them. Any changes could result in political challenges in accepting new processes.
• Over-reliance on Offline/Unstructured Data: Many processes involve excel spreadsheets, increasing the chance of human error. Conversations and unstructured data is often held in different places leading to difficulties in management reporting.

Opportunity Cost of Time:

Time is a finite resource. Competing pressures and deliverables for finance departments results in the opportunity cost of time spent on certain activities. In particular, consider the month end processes required in all businesses. Interruption and distractions during this process extends the time before which management reports are produced. Delays here result in management evaluating data which could subsequently be 7-10 days out of date and in turn, this adds complexity and delays to decision making.

Consider also, the opportunity cost of operational accounting versus strategic activities. If finance is constantly responsible for producing flash reports for various internal stakeholders, how does this impact the strategic support of the business through insights and a financial planning perspective? Ultimately a finance department that is able to deliver valuable strategic insights will contribute to a competitive advantage for the business.

Burnout:

Many of the demands placed upon finance are regulatory in nature or have a definite schedule that must be followed. For example, monthly management reports and information need to be produced as quickly as possible, statutory reports and VAT returns must be filed on time, documentation and evidence must be produced for the annual audit. Typically, these deadlines lead to a ‘just get it done’ mentality which can often see members of the finance department working long hours and through the weekend.

Whilst culturally this might be seen by some as the consequence of working in this field, the downside risk of employee burnout or attrition is widely documented. In the first instance the added hours and stress risk errors and a reduction in productivity. In extremis this could lead to employee attrition. If, as this article suggests, SMEs place a disproportionate responsibility with the finance department; employee attrition can lead to knowledge gaps or an under resourced situation. In turn, expensive or protracted recruitment processes are likely. This can distract the business from growth or other revenue generating activities, perhaps having an adverse impact on cashflow.

Change Management Difficulties:

Humans change constantly; physically, mentally and often in reaction to a changing environment. Disproportionate responsibility with finance can increase the risk of the failure of process and change management activities. When attempting to change the balance of power, depending on the tenure of individuals, ‘that’s not my job’ reactions might result. Possibly these individuals are unaware that a particular process in similar organisations might lie within their department’s remit.

Sometimes, to counteract the reliance on finance, SMEs often acquire a plethora of point applications for specific departments (e.g. expense management, timesheet, marketing, project management). Whilst this might alleviate some of the pressures on stakeholders; a multi-system landscape only entrenches siloes between departments and often leaves finance with an increased burden to provide the cross-business reports and views. In turn this means processes become harder to change given the lack of cross-business cohesion. Only though collaborative, cross department planning and communication can this begin to be mitigated.

Over-reliance on Offline/Unstructured Data:

With increased demand placed on finance, often the tool of choice for process management, data collection or reporting is the familiar Excel spreadsheet. Conviviality proved that in extreme circumstances the humble spreadsheet can lead to existential risk. In a similar vein to the above section, the focus can be for SMEs to procure or implement a ‘sticking plaster’ rather than a more long term solutions. If finance have disproportionate responsibility, the familiar Excel or other point solutions might be increasingly used, entrenching data and organisational siloes within the business. Often this data is maintained offline, updated infrequently (perhaps on a weekly or monthly basis), and perhaps most importantly; created and maintained by a single person. The consequential risk of this is very apparent and often recognised, but is the possible causation attributed to disproportionate responsibilities within a business?

In Conclusion:

Finance departments are in a constant pressure to balance operational accounting requirements with providing strategic insights and financial activities. Other business processes such as flash reporting, distractions, or being the conduit of cross-system data result in finance having disproportionate responsibilities in SME organisations. The above items hopefully highlight that this business risk goes underappreciated in these organisations. Those that successfully mitigate this risk, stand a much better chance of business growth and success.