The Central Issues of Today’s Financial Management
July 13, 2021
It is out of question that financial management brings substantial challenges to companies. Not only the ongoing pandemic has had an effect on the reliability of financial forecasting, various central issues have already been threatening sound financial management for the past decades. Whether these issues revolve around insufficient cash flow information, missing reconciliation reports, or unreliable forecasting, most issues could be prevented by accurate, reliable cash management and planning. Despite being aware of these common pitfalls, even profitable companies are prone to fail if they do not take the right actions when it comes to coping with these challenges. Astonishing 50% of medium-sized companies fail within the first five years.
Central issues companies face when it comes to financial management are:
Poor Cash Flow Management
Manual processes represent one of the main obstacles companies have to overcome. Especially for established companies this poses a challenge, as it requires changes in their deeply-rooted financial management system. Manual processes can be found in almost every company nowadays, mainly via the use of Excel files or similar systems. These processes do not only lead to higher costs due to tedious, time-consuming work, but are also linked to higher risks resulting from errors and inconsistencies in manual work. Risk is a crucial factor that needs to be controlled for and managed in financial management. Company-wide risk will increase if reports and data are not aggregated in a timely and accurate manner. Thus, manual processes depict an issue for the entire company that should be kept to a minimum by automating those processes. Process automation frees up valuable time and resources, enabling employees to do more meaningful tasks and create sustainable value. Having real-time reporting and reliable data is invaluable for financial management.
Uninformed Decision-Making without timely and relevant financial information marks another crucial issue many companies are facing. Having real-time reporting and reliable data is of the highest importance for financial management; however, not feasible with sole manual work. Manual processes may lead to reliable decision-relevant data not being readily available when decisions must be taken. This can result in faulty management decisions, damaging the company in the long run. Thus, reliable and timely financial data is crucial for a company’s success.
Poor Cash Flow Management marks the third and utterly most threatening issue. Even profitable companies can fail due to inadequate cash flow management. Information is often stored in many different systems by various people. Connecting this information is very time-consuming and challenging. These so-called data silos can also hold information in various different formats, making it merely impossible to deliver consistent and reliable reports due to misunderstandings and complexity. Financial information resulting from data silos and manual reporting is prone to be highly complex, unreliable, and inconsistent. Aggregating and collecting all financial information directly in one system will offer many benefits for a company, including more value-creating resources, timely and consistent reports, and reliable financial management.
These three issues often reinforce each other and severely damage companies. Thus, it is vital that one takes action and addresses the root cause of all problems. Sound data processing and cash flow management is the best way to become a more financially robust and successful company. Improving the Cash Flow Management capabilities requires continuous effort and process improvements.
Automating previously manual data collection is the ideal first step. This will lead to decision-relevant data being readily available when required and enhance transparency. Moreover, data analysis should be automated in a second step, as it eliminates the risk of human error and saves valuable time. To ensure successful automation, it is highly recommended to use software solutions. Optimal solutions also support automated Cash Flow Forecasting, lifting a company’s financial management capabilities to a new level.
A352 has developed the Financial Navigator, an all-in-one software solution dedicated to simplifying the financial management of MidCaps and larger SMEs. The Financial Navigator aggregates and analyzes all relevant financial data, creating transparency for decision-makers. Users benefit from real-time Cash Management, centralized payments, reliable Cash Flow Forecasting, intuitive Business Planning, and ad-hoc Analytics.