An Introduction to Building a Best-in-Class Finance Department

In this Value Growth Series, I’ve developed mini-series for each of the 8 Foundational Components that drive up your business’s value. Thus far, I’ve discussed planning, leadership, sales, marketing, personnel, and operations. Starting with this article, I’ll be talking about finance. Whether you are a solopreneur or an owner of a business with hundreds of employees, I want you to think about finance as a department or a distinct area of your business. And whether you’ve reached success in spite of your own financial ignorance or you are a financial guru, all business owners can improve in this area of finance.

Podcast Time Index for “An Introduction to Best in Class Finance Departments for Maximum Business Value”

00:52 – An Introduction to Best in Class Finance Departments for Maximum Business Value
01:20 – What’s Your Financial Know-How and State of Finances?
03:47 – Having a comprehensive Finance Department and Strategy
05:34 – Some simple questions to ask Yourself to understand Your own capabilities
10:12 – The ways in which a Best in Class Finance and Accounting department can enhance value
12:00 – Wrap Up.

Building a Comprehensive Finance Department and Strategy

When I was taking classes to earn my Certified Value Growth Advisor (CVGA^®) license, I came across the following statement:

“Without a comprehensive finance department and strategy, a company is at serious risk of not being able to finance future growth on sustainable terms thereby diluting [its] value.”

If you are trying to drive up the value of your company, you must reduce risk. No one is going to pay you for uncertainty. If you cannot produce a financial trajectory that shows historical growth and one that shows projected future growth, no one will be interested in buying or investing in your business.

Understand Your Capabilities

So as I talk about increasing the value of your business, I want you to look at the way you handle your company’s finances. Let’s find out how you’re doing currently and what your company is capable of doing.

• What financial information would you like to see that you are not getting today?
• Do you have a board of advisors or board of directors?
• Do you track sales and revenue through a financial management system?
• Have you created and prepared a budget for your business?
• Are you forecasting business growth through a pro forma financial statement?
• Are you using a budget and a pro forma to track your business’s growth?
• Do you know what you need to do and when you need to do it throughout the year?
• Are you meeting with your professional advisory team from time to time to predict your tax bill and make adjustments?
• How are you managing your cash flow?
• Are you paying down your debts?

By answering the questions above, you can determine how many improvements you need to make to your business’s finance department. Exactly what are you missing? What are you failing to do? If you can pinpoint what you are doing wrong, you can develop strategies to fix the problems because, ultimately, you want to strengthen your finance department.

How a Best-in-Class Finance Department can Enhance Your Business’s Value

But why? Why does the health and wellness of your business’s finance department matter? Well, as my CVGA^® handbook says, “[A business’s] value is influenced by risk and the predictability of future cash flows.” If you can show investors or buyers a history of steady cash flow and a projected trajectory of steady cash flow, your business becomes more enticing to them. It becomes valuable.

So exactly how can a finance department add value to your business? Well, it can:

1. Provide you with a financial analysis to improve performance and deliver consistent and predictable results.
2. Help you achieve the long-term goals you’ve created in your strategic planning process.
3. Provide transparency to leaders and investors.
4. Create internal controls that reduce risk.
5. Maintain compliance with regulatory authorities to reduce risk.
6. Manage cash flow to fund business growth.

Essentially, your finance department helps you track and predict revenue and profits, and it mitigates your company’s risks. The less risk your company faces the more valuable it is to investors and buyers. To learn more about how risk affects your company, read Cost of Capital – How It’s Calculated and Its Effect on Business Risk. And be sure to listen to the attached podcast for my take on this topic!

For the whole series of articles about financial aspects of business growth, click here.