The 2021 Finance Organization

Covid-19 wrought far-reaching changes to business in 2020. Of these, some will become permanent – there will be a greater adoption of electronic payments; others may be temporary – for example, how will companies return to the office? To build resilience for the months and years ahead, companies need to learn the lessons of the past year. As with other departments, finance will want to take best advantage of any innovations they adopted over the past 10 months, such as the greater digitization to facilitate remote working, to maximize operational efficiency and to add more value to their organizations. While companies will have been affected by, and responded to, the pandemic in different ways, there are some common themes that will continue to influence finance departments through 2021 and beyond.

Everyone is looking at Cash Now

Perhaps the biggest single change is that all companies, even those which have been historically cash rich and/or cash generative, have become highly focused on cash.

But cash is two things.

First and foremost, cash is liquidity. Without cash, businesses cannot survive, whatever the balance sheet might say. At the height of the pandemic, cash flows were volatile and unpredictable, creating uncertainty within organizations across all sectors of the economy. CFOs demanded deeper insight into cash positions, including intraday forecasts. CEOs and boards of directors have also become far more focused on cash.

Second, cash is information. Although individual KPIs can tell management how an individual business unit or department is performing, by definition they only track certain activities, and tend to focus on those activities that can be measured easily. Cash, on the other hand, is a business-wide indicator. So, as well as cash being key to the success of the business, cash flow is also a good marker of how efficiently the various activities within the business are operating. And a dynamic cash flow forecast will identify trends both within the business and along its supply chain, allowing the company to make better decisions and take swift action to manage or mitigate the effects of any deteriorating positions.

In that sense, cash performance is the most important of all an organization’s KPIs.

CFO is the Most Important Person

With cash the most important KPI, the CFO has become the key figure within the business.

Finance has traditionally been a reactive function, responding to other departments, focused on managing payments and maintaining liquidity. However, new business needs combined with enhancements in technology have transformed finance’s role. Remote access and the use of APIs, for example, have made it possible to gather more accurate data, from internal and external sources around the world, faster. With skills to interpret the data, identify trends and share insights across the business as they emerge, finance has increasingly taken on an even more strategic role within a company, with the CFO often a key decision-making partner working alongside the CEO and other business leaders to set, and implement, business strategy.

The recent, tighter focus on cash has simply accelerated the growing importance and influence of finance, and the CFO, within their organizations. The CFO and finance is now considered as core partners that can help all aspects of the business, from procurement to collections to sales and marketing, to understand the cash implications of their decisions and, consequently, to operate more efficiently.

Using Forecasts to Power Investment

The use of dynamic cash forecasts is critical to finance’s more central role. By automating data feeds and adopting machine learning, finance can leverage its improved visibility over cash to generate real-time forecasts. By doing so, finance can:

• Streamline its own use of cash. The availability of real-time forecasts provides more certainty to the timing of future cash flows, meaning finance needs to hold less precautionary cash.
• Provide greater support for the business as a whole. With a more detailed, real-time view of cash, and greater ability to run scenarios, finance can identify pinch points within the working capital cycle and support the business to manage them more effectively.

Dynamic forecasts work on two levels: by providing insights of value to the business, and by freeing time for finance to help the business make best use of them. And, by becoming more efficient, organizations create surplus cash and working capital that can be diverted towards capital investment and future business growth.