What business skills do finance professionals need in 2021?

How do you make sure you are keeping up to speed and staying relevant within the new finance department? 

The speed of change can be quite daunting. Not only is the change happening quickly but you as a professional, your skills and competencies must evolve at the same pace. The finance team is relied upon as a trusted business partner. It is crucial that the leading management knows if they are making the right decisions on behalf of the entire organization. That is why they need the finance team to produce and present financial insights that validates what the next move should be for the business.  

The finance department is as a result becoming drivers of data drive decision making. It is no longer enough to sit behind your desk and crunch numbers all day long. You have to present insights, thoughts, rational thinking, and conclusions which the leading business management can relate to and use for decision making.

To produce what your management need and to stay relevant when the technological wave hits the finance department, you will need to get out of your comfort zone as a traditional CFO or finance professional. 

Nudging in a nutshell

Before we start explaining how to use nudging for accelerating your digital development, let us first explain what nudging means.

The term nudging covers the cognitive and psychological method of successfully and quickly creating a change in certain behavior. Nudging means guidance: Just like an elephant mother uses her trunk to guide her young calf to go in the right direction, communication and design can guide humans to make the right decisions.

Nudging originates from a political arena and is a way of defining our surroundings. It is a method for you to make measurable changes in people’s behavior within a certain group or area.

It is all about ensuring the right decision is an easy one to make. Let us look at the cognitive way to achieve this goal.

Adopt an agile mindset

It is no longer enough for the finance department to deliver data that describes what has happened to your company financially. Now, you need to provide data that describes what could and should happen.

During the lockdowns this past year, we have seen an increasing need for changing reporting, forecasting more frequently, and getting new information. You always had to act fast and deliver insights swiftly because if you waited, the situation could be completely different the next day. This is where the agile mindset becomes essential. If you don’t have the ability to adapt to the changes the past year have brought to the world of finance, you will lag behind.

Digitization and automated processes are becoming the new normal because management needs you to deliver real-time insights and recommendations instead of being a number cruncher. Digital tools reduce time spent on financial consolidation and reporting, for instance. This is the reason why digital tools will play a big role in the work of finance professionals to get their jobs done in time.

The trouble with local chart of accounts!

Local chart of accounts are convenient when complying with local requirements. If you asked a local controller, auditor or advisor to help you set up the chart of accounts, you get exactly that local subject matter expertise, which makes it easy to set up your statutory financial statements, your local taxable income statement and other types of local reporting.

However, for consolidation purposes, you may be looking for something completely different: here, it is the accounting principles and structure of the parent company, which guide the requirements. Revenue or cost in the consolidated accounts may mean something completely different than revenue or cost in local, statutory financials.

Let´s look at two examples to illustrate this point:

• A factory preparing local financial statements with a profit and loss account showing Sales, Cost of Goods Sold; Selling, General and Administrative Costs (SG&A), Depreciation, etc. is considered a mere Production entity in the consolidated financial statements, with all costs going to Cost of Goods Sold, and all sales are eliminated anyway (as intercompany sales). Really, this is an example of the difference between organizing the profit or loss statement by function of expenses.
  
  
• Are losses or gains on investments included under Financial items, or under Other Comprehensive Income? Here, you would often see differences in classification between entity financial statements and consolidated financial statements.

Multiple examples can also be found in the elimination process: intercompany balances are offset, goodwill is reclassified, intercompany transactions reversed, etc.

Look at these two types of reporting and ask yourself this;

1) How does this apply to my own data?
2) How easy do I make it for management to identify trends, patterns, and outliers within my data sets?

Switching off reactive management mode and mapping your priorities

The first step in switching off reactive management mode, hitting the re-set button, and regaining momentum are to use your reflection on the past year. How you map out your priorities for the upcoming financial year is the most impacting task. Thus, you can ensure to constantly take the appropriate actions.

A smart move would be to start by looking at your data processes and ensuring they operate effectively.

Begin by asking yourself what the most prominent struggles were during the various lockdowns and what has changed.

• What caused you the most trouble when making strategic decisions?
• What barriers kept you from delivering the required insights?
• What caused you delays and why?
• Were you able to gain access to your data at the speed of your decision-making, or did you stall decisions?

The correct information brings knowledge…

…And knowledge is power. But do you know what the accurate information is, and if so, do (or did) you have access to it?

Covid-19 has made it fairly obvious who is losing power – the companies operating on obsolete locally installed systems. These systems make it difficult to be agile and stay up to speed. Especially, as many are now working remotely and handling tasks online.

On the other hand, the winners are companies with integrated systems and easily accessible through the cloud (like Konsolidator).

If you don’t count yourself in this group, surely the way you have organized your systems/workflows have proven to be a risky strategy. But fortunately, this also means you have a lot to gain just by changing how you operate. If you struggled when the speed of requirements and insights accelerated, you should change. It is evident that you need new systems to support new requirements.

Every process is either working or not.

By continuing the same path as before, it is difficult to be able to catch up. Competent finance professionals will acknowledge that cannot recover from the weaker spots in their workflows

So, make a list of how you can change by doing something different.

Admit what was/is broken so you can fix it (sooner rather than later).
Once you start assessing your workflows and reflecting on their performance, it will become obvious which areas need the most attention and where your urgencies lie. This insight is the key to taking back control and looking forward to scenario planning, forecasts, and minimizing your exposure to reoccurring risks.

Look at your systems

• Can you connect remotely?
• Are they interoperable?
• Are they installed locally on your device, or can you access them from your web browser?
• Do they allow you to get access to your data at the speed of your decisions?
• In which business areas should you look for a replacement tool for your current?

Your data is the main driver for strategic decisions, so looking at your data will undoubtedly inform your next priorities.

One example is those tasks that rely on shared Excel spreadsheets – the remote working environment has probably given the death blow to those once and for all. Trying to work efficiently in shared spreadsheets has never really been ideal considering the far-reaching type of errors that are common to these Excel spreadsheets like:

• Formular errors
• Copy/paste errors
• Deleting notes
• Typos
• …(feel free to add more yourself)

If you are a company for whom the Excel nightmare blew out in full force during these last couple of years, you need to re-think how you handle tasks. Going through the methods you need, and the systems you currently are using should be your priority if you want to prevent the challenges you have just experienced.

Otherwise, you will undoubtedly (continue) to spend valuable hours and days on time-draining tasks like administering spreadsheets, reconciling the numbers and calculations, and adjusting formulas, instead of on value-adding activities such as providing agile insights to your enterprise.

If you want to gain momentum and be more strategic, you have to be proactive, and that you can only do if you implement tools that help you ensure correct numbers and give you back time to analyze your numbers rather than being stuck in the production.

Can you be data-rich but knowledge-poor at the same time?

Now that we have covered where your data comes from and how you can work to improve your data flow, we will round off by taking a moment to look at your financial report as the last step in how to drive strategic decisions.

One thing is having access to data; another is knowing how to use it correctly. And therefore, yes, you can easily be data-rich and knowledge-poor at the same time.

Data, reports, and analysis are essential because you cannot make insights and financial statements without the raw numbers. Where you make a difference is when you share insights, make recommendations, and influence the management’s decisions, so they make better decisions and execute better.

But the value of your data lies in your ability to communicate them right. Hence a focus on how you present and communicate your data is critical.

The more data you get access to, the more data you will have the opportunity to present.

Figuring out exactly what to present is the real task. Otherwise, the risk of you (and management) drowning in the overload of data and losing sight of the key factors that should drive decisions is immense.

Defining what to communicate, therefore, becomes your most important task. Gathering all your data and sending it forward to management is easy to do. But this has got nothing to do with building valuable financial insights.

However, filtering and selecting the correct strategic data and presenting it is, precisely, what you want to be doing to ensure you effectively present and visualize the important message your data is telling you (and your management).

An old-fashioned Excel Spreadsheet can be impossible for outsiders or non-financial professionals to understand. To be sure your message comes across, present your data so it is digestible for everyone.

Here Power BI (or any other visualization tool) is your friend!

You have to move away from the classic column layouts in Excel and think more creatively about how you present your data to management. Presenting data to your management in large Excel files will not benefit anyone.

You need to present data in a way that easily communicates the story the data is telling you (for your financial group reporting, Konsolidator can help you do this).

By now, you have probably realized that being only a number cruncher sitting behind your screen is no longer enough. You must seek out and talk to people in your organization to gather valuable insight about the business. Especially for SMEs, it is essential to facilitate this change during uncertain times, where real-time insights for what to do and why to do them are crucial for business survival.

Start with the beginning and build a data flow that delivers accurate financial statements.

And remember, the output of your data is only as good as the input, so data structure comes before anything else.

Use data integration to optimize the workflow and influence decisions 

In finance today we often talk about how to optimize the workflow in order to deliver faster real-time insights for management to base their decisions on. We want to work smarter to be more efficient and as a result gain time for the in-depth financial analysis which can improve our business. So we want to be efficient and fast but at the same time we also want to be able to trust our data and increase the data quality.

To do this there are 5 hot topics when talking about trends in the finance function 2021, we need to have our eyes open to:

1. 1. 1. 1. Big data: Big data involves a large volume of data from different sources,  handled by different software and people.

         2. RPA: Robotic Process Automation is all about letting robots take care of manual, tedious tasks to save time and minimize the risk of errors. 

         3. AI: Artificial Intelligence is manufactured intelligence demonstrated by machines. It is not seen so much in the finance function yet, but we foresee it will soon be a big part of the finance department as well.

         4. Machine Learning: Machine learning using machine power to estimate the future by creating forecasts.

         5. Visualization and communication: The role of finance professionals is changing, and it is becoming your job to communicate and present relevant recommendations based on real–time insights made from trustworthy, quality data.

Why do you have different set of numbers?

It may seem like a suspicious kind of accounting to have two sets of numbers, but let’s just clarify what we mean exactly: the basic accounting is obviously the same.

Debit and credit is the same in Germany, Denmark, Sweden – in fact, debit and credit is a global language, accepted and understood by accounting people across the world!

When you account for a sales transaction, a purchase of goods and services, or when you pay salaries to employees, this is pretty much done in the same manner across the globe.

But, when it comes to the accounting items, where a certain degree of judgement is involved, you will often find differences in the accounting guidelines from one country to the next.

Let us illustrate it with a few examples:

• Depreciation of tangible fixed assets: you will often find that different countries set depreciation over different periods. Or, only allows certain depreciation methods.
• Allow interest to be capitalized as a component of fixed assets or inventories.
• Include financially leased assets in the balance sheet, or not.
• Allow deferred tax assets to be recognized in the balance sheet, or not.

Of course, you have globally accepted and aligned accounting frameworks – IFRS, for example – which are used in a number of countries and ensures consistent reporting in the consolidated financial statements. IFRS would often be ‘the language’, in which you report the set of numbers used for consolidation. But that does not eliminate the challenge of different sets of numbers, because local entities still have to report local financial statements for statutory purposes, or as part of local tax regimes.

Why is it always last-minute entries that go wrong?

Reporting from consolidated entities is often subject to multiple local controls. Your control framework – which is usually worked intensely on with the help of skilled auditors and consultants – requires all journal entries to be documented, approved, tested, and audited. Also, local reporting often forms the basis for local KPIs, bonus schemes, and balanced scorecards. In itself, this requires due diligence in reporting (not saying, of course, that you cannot find errors and omissions in the history of accounting, even down to accounting performed in local sub- or sub-sub-entities). However, the final accounting adjustments, made on a group level, are often handled by a select group of employees.

And this group of employees is often crucial in finalizing the financial statements for the year. It probably has the company CFO in it, as an example, who may be the only person in the company knowing whether the company: 

• wants to restructure a division, 
• close down a factory, 
• cease an operation, 
• Or other

This group of people is the one to assess a potential impairment. As a result, the final adjustments may not be ready until the very last minute. Furthermore, they may be hand-carried through the books by the same people who prepare the adjustments. But if this is the case, there should be processes that ensure a fast and accurate approach to avoid the risk of errors. The 1-10-100 rule illustrates the importance of this.

The annual report and its many uses

For large companies, the annual report would mostly be considered a compliance and regulatory requirement not least if it is not a listed company. The report rarely produces any new information for internal stakeholders and is considered a non-event by most stakeholders when published. Why?

They are already discussing February performance of the next year (assuming you follow a calendar year). The report might make some waves with investors in listed companies but even here they are rarely caught by surprise about historic details. Let us instead turn to SMVs and consider their use of the annual report.

For many smaller companies, the annual report might be the only time of the year that they do a real hard close. They likely have a good idea about their P&L and working capital during the year but not all other details. That already makes the annual report an important process in reviewing the performance and worth of the company.

The internal perspective

For Finance this an opportunity to scrutinize the numbers in greater details. Finance can ensure all the assessments made during the year to make up a P&L gave a correct picture of the company’s performance. Moreover, the balance sheet including provisions and tax should be assessed with a potential impact on the P&L.

It is also a good opportunity to close the year having some performance talks with department heads and management. Finally, it is the basis on which management will go to the board and evaluate the year. Was the budget met? Did management live up to its expectations? What significant assessments have been made on provisions and accruals, etc. It might be outdated information but, in some way, it is still the first time that many stakeholders in the company get a full overview of the performance for the year.

The external perspective

There are more eyes looking at your company than you realize. Public authorities, competitors, suppliers, customers, potential buyers, etc. For all non-listed companies, the only way they can get good financial information on your company is through your annual report. This needs to be submitted to the central business register and will usually be publicly available for interested parties.

This in turn forms the basis for many different activities such as credit reports that can be bought, key figures comparison to competitors, valuation by potential buyers, etc. Unless you go beyond regulatory requirements and publish your annual report and additional information yourself this is the only way these stakeholders can get access to your financials. Hence, it is in your best interest to do a proper job and create high quality financials. They will go a long way to establishing trust around your company’s activities.