Business Partnering: How to Make Finance Conversations Really Productive

The CFO and finance team constantly interact with the rest of the business on a variety of matters. This could range from monthly results, performance reviews, forecast discussions, board meetings and budget meetings to new product launches, cost cuts, investor meetings, regulatory changes, accounting changes and strategic vision.  

A common trap that the finance team often falls into is to be carelessly generous in providing views and opinions, even when one is not 100% sure of the facts

The success of the CFO's team is largely dependent upon the quality of the conversations they are having with the business fraternity. Generic, unclear and baseless comments make for weak conversations and do not help build the credibility of the finance shop.

On the other hand, fact-based and clear comments, backed by well-researched and established analyses can lead to an objective conversation, resulting in a productive outcome – while also enhancing the credibility of the finance team.

The key is winning trust and confidence. This necessitates that the CFO's team not only possess certain distinguishing qualities, but also tactfully demonstrate them in every business conversation.

Here are five action steps that I believe are requisites for fruitful conversations to transpire between finance and business:

  • Stay strong on finance fundamentals
  • Demonstrate deep understanding of business
  • Report and leverage on a robust management information system
  • Know the business partner well
  • Strive to become a mentor to business

Have Strong Fundamentals

At any point of time, the finance team may be consulted on a variety of matters, such as revenue treatment of a new product line, reasons for deferring of a revenue stream, treatment of a certain item as a capital expense and the delegation matrix. The CFO and his team should be in a position to address these in a satisfactory manner

Build a firm base. At the very root of a strong finance team is financial control and discipline. It is imperative that the finance team is well versed with applicable accounting concepts, relevant international standards, and legal and regulatory requirements in order to ensure that the books of accounts are maintained in an integral and reliable manner.

The onus is on the CFO to keep himself and his team abreast with the most current developments in the accounting world and on the regulatory front. He needs to ensure that industry-specific accounting policies are in place and his team is well-versed in the associated nuances.

Equally, he needs to institute tight internal controls and procedures, which help maintain integrity of the books as well as the organization.

If the team is well-versed in accounting standards and policies, they would be able to provide an instantaneous explanation to any question that comes up. This helps build credibility with business.

It is also essential that the views of the various members of the finance team are consistent and not in conflict with each other. If not, this could potentially mar the credibility of the shop.

Provide advice based only on hard facts.  A common trap that the finance team often falls into is to be carelessly generous in providing views and opinions, even when one is not 100% sure of the facts. This typically tends to happen when time is a scarce resource and a timeline has to be met, forcing the finance personnel to make some judgmental conclusions without necessarily validating the facts. 

Subsequent proof contrary to the conclusions drawn may put him in an embarrassing position in front of the business head, leading to potential dilution of the finance team's credibility.

A good understanding of the sales commission structure will enable the team to decipher what proportion of the commission is to be accounted for as fixed cost and what proportion as variable and perhaps contra-revenue

It is always essential that the hard facts are validated 100% before any conclusions are drawn or opinions given. This presupposes that there is a robust set of processes that allow the right information to flow to the CFO via the finance reports.

Develop In-Depth Understanding

Finance can only function efficiently when it has a thorough understanding of the business it is servicing, including the environment it is operating in, products being offered, value proposition, marketing strategies, credit policies, sales channels and promotions, and operational and servicing capabilities.

Understand the business and product suite: A thorough understanding of the key aspects of the business will enable the finance team to better perform their role as accountants, as well as their role as business partners.

To achieve this, the finance team must be willing to spend time with the business people, tapping into their knowledge and also reading business and product documents. "A work day with each function" is also recommended to understand exactly how business is done at various stages and how customer transactions take place.  

For instance, a good understanding of the products will help the team understand the revenue and cost drivers better, which will help them with forecasting.

Likewise, a good understanding of the sales commission structure will enable the team to decipher what proportion of the commission is to be accounted for as fixed cost and what proportion as variable and perhaps contra-revenue. 

These attributes will in turn enable the finance team to have more informed and intelligent conversations with business units.

Understand the organization’s goals. Understanding the business unit’s goals such as the outlook for the next five years, investments available and the products and regions it will focus on will help the CFO direct and align his day-to-day decision making efforts.

Finance will be in a position to use that knowledge intelligently in conversations with the business fraternity, for example with regards to a product launch or a marketing campaign. Every action taken will be a step in the direction of meeting the organization's stated goal(s).

The CFO and his team act as a bridge between management intention and result realization.

Report Fast on a Robust MIS

In today's dynamic world, it is imperative that quick and sound business decisions are made. This can be made possible by making sure decision-making is backed by a strong management information system (MIS) framework. MIS reports should be constantly updated so as to capture key information about new lines of business, new campaigns and so on.  

Provide timely, reliable and relevant information. The CFO needs to make sure that, on a periodic basis, a standard financial performance report is delivered to management, including business heads, and that it is well understood.

The finance team's conversations with business typically revolve around facts. So it is important that the key indicators of performance are made available to all concerned. This will ensure that the discussions are based on factual data that everyone has access to. 

It is also often the case that certain performance indicators are published in more than one report in an organization. For example, the sales volume may feature not only in the finance report, but also in the sales report.

An important aspect of the finance function's responsibilities is to educate others in the business and help them gain a better understanding of the impact of their actions on the financials

It is the duty of the CFO and his team to ensure that such information is consistent across multiple reports. This will facilitate meaningful conversations and help avoid wasteful discussion around the veracity of numbers contained in the finance reports.

A great opportunity for the finance team to boost its credibility is by massively improving completion and submission times of monthly reports and response times to queries that come their way.

Capture any information possible: When a new campaign or a new product is launched, the finance team typically faces a challenge in terms of obtaining sufficient and timely information related to it, due to underlying operational or system issues.

In such situations, the finance team would do well to go the distance to capture any information available, even if in raw or limited form, for management's immediate consumption. This is better than not having any information at all or waiting for the system to capture it much later.

There is an opportunity here for finance to score a good win by anticipating such a need and doing its best to source whatever available information. An accompanying note with preliminary observations on what the data suggests would certainly win a brownie point or two for the finance team and would have a significant bearing on any related subsequent conversation.

Know your business partner

It is important for the finance team to understand why business people behave the way they behave. What drives the sales folks or product folks? Often, the conversations between business and finance are not productive due to differing wavelengths and lack of alignment.

The CFO’s conversation is influenced largely by what he sees in the financial performance reports. For the sales head, the take-off point is typically market reality or what the competition is doing.

The sales head wants to accelerate volume growth, while the finance head may be hesitant due to lack of profits in that product line, as shown in his finance reports. This is also applicable to a new product launch or a new campaign being planned.

The head of sales has a better understanding of the marketplace and therefore the actions of competition are more visible to him. On the other hand, the CFO has an overall profit objective to deliver and hence swears by the finance performance reports.

It is critical that the CFO and his team relate to the views of the sales department. Once the sales perspective is understood by the CFO, he would be able to strike a more meaningful conversation, which will in turn lead him to reaching a more tenable agreement in terms of the course of action required.

The ability to step into the shoes of his business counterparts is a quality that the CFO ought to possess.

Become a mentor to business

Educate the business folks on finance and accounting matters and make them see finance's perspective.

An important aspect of the finance function's responsibilities is to educate others in the business and help them gain a better understanding of the impact of their actions on the financials. 

To cite an example, a classic case of debate between finance and sales could be on the revenue generated in a given month. I can bet, that in any given month, in any organization, the revenue figure as per the sales records would be higher than the revenue figure as per finance's reports.

This may have to do with accounting policy that defers a portion of the revenue to the following period or treats a certain cost as a contra-revenue adjustment.

Sales commissions are driven directly by the sales performance in a given month. Any reductions would have a bearing on commissions. The onus is, therefore, on the CFO and his team to educate the business people about relevant accounting policies and practices that have a bearing on the revenue that is recognized in a given month.

The CFO or any team member may conduct classroom sessions with the business fraternity to explain accounting policies and practices that govern the preparation of financial statements.

He may also update them on any changes in any relevant regulations. This will help him establish a lasting rapport with the business side and open upon new avenues for information exchange and transparency.

Conclusion

Equipped with the right resources, the CFO and his finance team should be able to have objective conversations with business heads and other colleagues. The finance team's future lies in its success as a business partner and this requires that the team is on top of its game.

The onus is on the CFO to embed the above five qualities in his shop so as to build a finance team that is consistently proactive, sound on fundamentals and at the same time caters to dynamic business needs.

About the Author

Ramesh Narasimhan is the Founder and Principal of Singapore-based Value Consulting Asia, which provides CFO advisory and related services. He is also a Senior Consultant with StraitsBridge Advisors, a specialist firm providing advisory and execution support for CFOs in banks and financial firms.

Photo credit: Shutterstock

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