By Ulrika Haug, Senior Director, Coupa Software

Hope is on the horizon with the vaccine rollout and easing of Covid-19 restrictions across Europe and North America. While the light at the end of the tunnel is getting brighter, the reality that these disruptions could happen again is not lost on business leaders. In particular, the unpredictability makes it challenging for finance teams to ensure their business’s stability and achieve optimal financial health.   

During the past year, many finance leaders had to take quick and decisive action. A survey by Coupa found that 70 per cent of financial executives made broad-based cuts in order to contain costs. Many businesses froze hiring and cancelled or deferred investments to keep their businesses running in the short term. However these kinds of reactive responses are unsustainable long term and can actually hamper financial recovery and growth.    

To grow the business, finance leaders need a mandate to regain control over their business’s financial health, and research shows that preparing now pays off later. McKinsey found that businesses that prepared sooner, faster and more strategically to handle disruptions in profitability, cash flow, liquidity, and growth went on to perform better financially at both the outset of a downturn and after. In fact, McKinsey’s analysis found that these ‘resilient’ companies went on to outperform other companies by more than 150 percentage points when looking at returns to shareholders. 

Key to achieving resiliency and regaining control is financial maturity – the more financially mature a business is, the better it can plan for uncertainty while also being able to respond to disruptions with agility.  

No matter how financially mature your business is, there are always ways in which it can evolve and improve. To identify the best path forward, you must first assess how financially mature your organisation is.

1. Reactive  

Initially, most companies are reactive when beginning their financial maturity journey. Typically, processes are manual, such as on spreadsheets or paper. This might be natural for a small team starting out, but as a business grows, this process does not scale and becomes time consuming. Processes might be error prone and getting things done quickly becomes increasingly difficult as Procurement, Finance, AP, and Treasury become entrenched in silos. A survey of financial leaders found that the vast majority of companies (78 per cent) are still reliant on these types of methods to manage their business spend. 

2. Operationalised 

To move from Reactive to the next stage, Operationalised, a company must digitise its operations and consolidate its financial information. The business will need to move away from spreadsheets and paper – and start connecting systems together using cloud-based technology that enables collaboration and data to flow between departments. 

Problems may still crop up at this stage. For instance, bottlenecks can still occur and time-critical transactions can be held up by manual processes elsewhere in the business. Although siloed spend may still be happening across the business, digitised operations will make it easier to identify and address.

3. Orchestrated

The next stage of maturity is when companies become orchestrated.To get to this stage, it’s important that businesses invest in comprehensive technology platforms that unify the different aspects of their spend and liquidity. This enables them to have a more complete picture of their overall cash position and to make more accurate forecasts. Companies will also begin leveraging the power of AI to detect fraud and automate the supplier screening process.

Companies at this stage will see evidence of their financial transformation beginning to accelerate, and the ROI increasing. Their spending is smarter, cash projections are painless, and supplier relationships can be developed to deliver even greater value. Financial leaders have more time to focus on more strategic goals. 

4. Optimisation

The last stage of the maturity journey is optimisation. Getting here requires businesses to  pull on all the levers they’ve invested in during the previous stages of financial maturity. Optimised companies can leverage the power of advanced technologies to automatically predict and assess threats and fraudulent activity before they happen. These companies are ready and able to respond quickly to protect their financial health in any given situation, no matter what disruptions may come.  Businesses at this stage are committed to continuous improvement, whether that’s by improving profitability, protecting the bottom line, or driving greater returns on investments into innovation. Financial maturity is ongoing and businesses should focus on tracking their performance against KPIs and continually optimising to achieve best-in-class results.

Time to assess  

As a finance leader, how should you start to lay the foundations for financial maturity to achieve optimisation?  

The first step is to assess the financial health of your company and determine the best path forward. This moment of reflection and assessment covers three key elements.   

The first is visibility. Without visibility, you have blind spots in data and decision-making and will therefore be reactive. Research from the Economist Intelligence Unit found that more than 60 per cent of CFOs lack complete visibility into their transactions. Do you have visibility to all your costs and cash flow, in real time? 

The second element is control. Liquidity is the oxygen of financial systems, and a lack of control makes it near-impossible to manage liquidity – let alone ensure compliance. By empowering your team with the correct control capabilities, you make it easier for them to optimise working capital – ensuring that the company has the right cash, in the right currency, at the right time. On top of this, financial control also brings with it traceability which is vital for oversight and easing the pressure around audits. 

Finally, we have financial performance, which is ultimately what drives business success. How are you performing currently, and where is your untapped potential, for example, where can you unlock more working capital?  

Together, these three elements affect your financial health across spend, payments, and liquidity. By unifying the financial data across your business, you can create a strong foundation to reduce risk, improve operational performance, and optimise spend and liquidity. Once you have taken stock of your business, it is time to act decisively.  

 The moment of action  

Now that you’ve assessed your current state, what actions can you take to improve your financial maturity? Here are some examples when building resilience into your next move. 

First, identify and break down silos that impede agility. Without these silos, it is easier to see the complete picture of your company’s financial health.   

The first step to achieving this is unifying the processes from source-to-settle allowing you to streamline all of your procurement processes and eliminate gaps that can appear when using disparate systems. As a second step, it’s vital that everyone has access to the same data in real-time so that everyone is working from a single source of truth. Ensure that information is captured from every element of your financial processes from source-to-settle, so that there are no visibility gaps. 

The journey to financial maturity is never truly complete, as your work to continuously improve is ongoing. There is always the risk of regressing by allowing silos to reform or losing visibility of financial data as the company grows larger. As your business matures and optimises you will gain the confidence to be able to respond rapidly with the right data at your fingertips. We will never be able to entirely avoid or prevent disruption, but research shows that we can better prepare for it by focusing on financial maturity.