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Transcript

Setting Goals for the Finance Team · Enhance.training

• 0:00
  SPEAKER_00: To help those setting goals for the finance team, I cover seven key areas, four goals that will help the finance team to drive business growth, improve control of the business, and improve business performance.
• 0:12
  SPEAKER_00: In each of the seven areas, we go through a list of examples to give you practical ideas.
• 0:18
  SPEAKER_00: And if you're non-financially trained, a board director, a manager, or an SME business owner, don't worry, this podcast doesn't have loads of financial language in it.
• 0:26
  SPEAKER_00: And for the finance team members, this podcast should give you a good checklist of areas to think about when setting goals.
• 0:32
  SPEAKER_00: My name is Jess Coles and I've spent 25 years working in corporates and household names through to SMEs at all management levels.
• 0:40
  SPEAKER_00: And I've worked with many MDs to set goals for the finance team in businesses.
• 0:44
  SPEAKER_00: I've also set lots of goals as a finance professional myself and when helping improve finance team performance.
• 0:50
  SPEAKER_00: If you're new to this podcast, Enhanced.training provides online business courses to help professionals, managers and business owners improve their performance.
• 0:59
  SPEAKER_00: And if you like this podcast, please share it with friends and colleagues.
• 1:03
  SPEAKER_00: The first area to cover when setting goals for the finance team is your expectations of the finance team.
• 1:10
  SPEAKER_00: Being clear on what you want from the finance team is a very important place to start.
• 1:15
  SPEAKER_00: For instance, do you have a relatively simple business model that is easy to manage and you just need basic financial data and reporting to help you and your team make the business decisions?
• 1:27
  SPEAKER_00: This basic reporting requirement could be provided by one or two people with financial management and reporting skills.
• 1:33
  SPEAKER_00: And these skills are readily available in the market and are not overly expensive.
• 1:39
  SPEAKER_00: Towards the other end of the scale are much more complicated businesses in which a lot more can go wrong.
• 1:45
  SPEAKER_00: For these situations, you will probably want a finance team to be active in the business management, in setting financial strategy, managing funding, maintaining control of the business, and helping drive profitability and cash generation.
• 1:59
  SPEAKER_00: This finance function will require multiple people with a mix of skills, you know, from financial reporting skills which are relatively available on the market through to very skilled individuals able to ask the right questions and provide the right insights to drive financial performance, get the funding structures in place, and mitigate business and financial risk.
• 2:18
  SPEAKER_00: As you can imagine, the cost of employing these skills is much more significant, as are the benefits to the business and the management team.
• 2:27
  SPEAKER_00: And of course, there are lots of different levels of sophistication in between these two examples.
• 2:33
  SPEAKER_00: Work out what your business needs in terms of financial management and set the goals of the finance team according to these requirements and of course the skills you have available to you.
• 2:43
  SPEAKER_00: So let's go through the typical areas most businesses should think about, starting with more basic areas through to the more sophisticated.
• 2:50
  SPEAKER_00: So the second area to cover when setting goals for the finance team relates to their purpose.
• 2:56
  SPEAKER_00: In my view, a good finance team must have some of its goals focused on firstly improving profitability for the company and secondly improving the cash generation of the company.
• 3:08
  SPEAKER_00: These goals turn the finance function from a traditionally viewed cost centre into a profit or value centre, i.e., the measurable benefits the function delivers to the business outweigh the cost of employing the staff.
• 3:21
  SPEAKER_00: The better your team in general, the bigger the multiple between these two.
• 3:26
  SPEAKER_00: There are lots of ways to improve profitability, depending on your business.
• 3:30
  SPEAKER_00: Examples of goals to set the finance team could include, you know, firstly, compare the performance of each team within the business and work with the team leaders to identify best practice.
• 3:40
  SPEAKER_00: Or it could be to increase performance visibility, i.e.
• 3:43
  SPEAKER_00: a PL by team, which would help drive team performance.
• 3:47
  SPEAKER_00: Or it could be identify and reduce non-productive costs by X pounds.
• 3:52
  SPEAKER_00: Or it could be identify price increases that will increase profitability by Y pounds.
• 3:57
  SPEAKER_00: Or it could be model discounting options to increase sales volumes by X pounds and increase profit by Y pounds.
• 4:04
  SPEAKER_00: Or it could be create Z pounds from changing the mix of products or even from changing the mix of customers and suppliers.
• 4:11
  SPEAKER_00: Or it could be increase the margin by 3% from X million pounds and tenders without increasing the risk, and so on.
• 4:19
  SPEAKER_00: Improving cash generation is focused on converting as much profit into cash as quickly as possible.
• 4:25
  SPEAKER_00: Examples of goals could include generate 5 million of additional cash by renegotiating supplier payments.
• 4:32
  SPEAKER_00: Or it could be reduce the value of customer invoices in query by at least 30% on average over 12 months.
• 4:39
  SPEAKER_00: Or it could be reduce the value of stock as a percentage of sales by 5% while ensuring the maintenance or reduction of stockouts.
• 4:48
  SPEAKER_00: Or it could be reduce uninvoiced work in progress by 20% over the year.
• 5:01
  SPEAKER_00: Think through the unintended consequences of setting each goal.
• 5:05
  SPEAKER_00: Goals drive behaviour, so make sure you understand the behaviour you're encouraging.
• 5:10
  SPEAKER_00: The third area to cover when setting goals for the finance team is financial reporting.
• 5:15
  SPEAKER_00: What level of detail do you need in your reporting and how quickly do you need it?
• 5:20
  SPEAKER_00: Are probably two of the key questions for financial reporting.
• 5:24
  SPEAKER_00: The more detail you have, the more likely you are able to drive accountability into all areas of your business, thus improving decision making and performance at business unit, department, team, and even individual level.
• 5:37
  SPEAKER_00: There is a cost to detail, unfortunately.
• 5:39
  SPEAKER_00: You'll need to capture more information and you'll need to do something sensible with it.
• 5:44
  SPEAKER_00: This will probably need investment in people and skills, processes and systems.
• 5:49
  SPEAKER_00: Also, the quicker you want information, then the more automation you'll probably need.
• 5:55
  SPEAKER_00: Goals might include identify and create reporting to track our five most important financial levers.
• 6:03
  SPEAKER_00: Two examples of financial levers, you know, utilisation in consultancy businesses or product gross margin in a product business.
• 6:11
  SPEAKER_00: It could be create monthly PLs for each business unit or team.
• 6:15
  SPEAKER_00: Or it could be create balance sheet reporting by business unit and train the managers on what they should be managing.
• 6:20
  SPEAKER_00: Or it could be increase the accuracy of our sixth month forecasting by 10%.
• 6:25
  SPEAKER_00: Or it could be speed up the production of a management reporting pack so it is available on working day 5.
• 6:31
  SPEAKER_00: Of course, add realistic time frames for each improvement to each goal to drive better accountability.
• 6:38
  SPEAKER_00: The fourth area to cover when setting goals for the finance team is compliance.
• 6:42
  SPEAKER_00: Compliance covers a wide range of areas depending on your business.
• 6:46
  SPEAKER_00: Usually this is all the external reporting you need to do and payment of taxes of the right amounts in the right time frames.
• 6:54
  SPEAKER_00: Some examples of goals might include make better use of RD tax credits to reduce our corporation tax burden by 2% of profits.
• 7:03
  SPEAKER_00: Or it could be ensuring all our sales and employment taxes are calculated correctly and paid on time with no queries from HMRC.
• 7:11
  SPEAKER_00: Or it could be the annual audit is completed on time and within budget without significant issues being highlighted.
• 7:17
  SPEAKER_00: Or it could be all investor queries are answered within two weeks.
• 7:21
  SPEAKER_00: Make sure any compliance goals you set are specific to your business and the sector.
• 7:26
  SPEAKER_00: The fifth area to cover when setting goals for the finance team is team development.
• 7:32
  SPEAKER_00: The stronger your finance team, the more profit and cash they should be able to deliver and still reduce business risk profile.
• 7:40
  SPEAKER_00: A good finance team will easily pay for itself and a very good one will create many multiples of their cost in value to the business.
• 7:48
  SPEAKER_00: The team and its leader drive improvements in people, processes and systems.
• 7:54
  SPEAKER_00: Without the right people and the right skills, your finance team's output can quickly fall behind the requirements of a growing business.
• 8:01
  SPEAKER_00: Goals might include increasing the ratio of qualified to non-qualified staff in the team.
• 8:07
  SPEAKER_00: Or it could be increasing time spent training, mentoring and coaching the staff to improve their skills.
• 8:13
  SPEAKER_00: Or it could be creating development plans for all team members and invest in making them happen.
• 8:18
  SPEAKER_00: Or it could be to create a small peer network with non-competitor finance teams.
• 8:24
  SPEAKER_00: Or it could be hiring people with specific or missing skills into the team.
• 8:28
  SPEAKER_00: The sixth area to cover when setting goals for the finance team is systems.
• 8:33
  SPEAKER_00: Nearly all businesses have a finance or an ERP system on which you capture all of your financial data and for ERPs, operational data as well.
• 8:42
  SPEAKER_00: Systems used well increase the speed and accuracy of reporting, reduce costs and increase business control and visibility.
• 8:50
  SPEAKER_00: So ask, is the system, how it is configured and how it has been used all fit for purpose?
• 8:56
  SPEAKER_00: Examples of goals could include building automated weekly reporting on the key financial drivers of the business.
• 9:04
  SPEAKER_00: Or it could be reduce the time to turn around financial queries to a maximum of three days.
• 9:09
  SPEAKER_00: Or it could be reduced the use of Excel for reporting and data management.
• 9:13
  SPEAKER_00: Or it could be reduced processing staff numbers in the team in exchange for system investment and automation.
• 9:20
  SPEAKER_00: The seventh area to cover when setting goals for the finance team is financial strategy.
• 9:25
  SPEAKER_00: Financial strategy in the context of running and managing a business covers many areas, and whatever goals you choose should support the success of your business.
• 9:34
  SPEAKER_00: So key areas to think about for goals include what should be the planned mix of funding for the business.
• 9:40
  SPEAKER_00: Common approaches include equity, debt, and also suppliers.
• 9:45
  SPEAKER_00: What is the financial impact of the business model and how do you improve the risk reward profile of it?
• 9:52
  SPEAKER_00: How much cash are you planning to hold?
• 9:54
  SPEAKER_00: Bear in mind that the higher the level of cash, the lower the risk of business failure.
• 9:58
  SPEAKER_00: Others argue that holding cash is expensive and unproductive.
• 10:02
  SPEAKER_00: What is right for your business?
• 10:04
  SPEAKER_00: Another goal could be how can you create competitive advantage through the financial aspects of your business.
• 10:11
  SPEAKER_00: Or it could be how are you going to improve the profitability and cash generation of the business over time.
• 10:18
  SPEAKER_00: So in summary, setting goals for the finance team and getting the right goals to maximize the support the finance team gives to your business is always important.
• 10:27
  SPEAKER_00: Goals drive behaviour and focus.
• 10:30
  SPEAKER_00: Get them right and get the team right and you get great results.
• 10:34
  SPEAKER_00: Get them wrong, even if you have a great team, and the results will be disappointing.
• 10:39
  SPEAKER_00: Good luck in setting goals for the finance team that are really useful to driving the business forward.
• 10:45
  SPEAKER_00: Do visit us at enhance.training and take a look at the courses and resources to help you manage your team more effectively.
• 10:52
  SPEAKER_00: And if you like this podcast, please share it with friends and colleagues.
• 10:55
  SPEAKER_00: Thanks very much for listening, and I look forward to speaking to you again soon.