finance trends modernizing finance in private companies

Finance trendsModernizing finance in private companies

So where is finance today?

On average, CFOs/finance leaders spend almost one- quarter of their time on reporting financial position and operations—more time than they spend on any other activity

87%Almost nine out of10 finance teams(87%) struggle to keep up with their current workload

1/4 85%Of CFOs/finance leaders believe their CEOs place a high priority on the finance team providing insights to senior management

Source: Deloitte Canadian CFO/Finance leader survey, 2016

Where would finance like to be?

More than 9/10 of CFOs/finance leaders believe improved tools for forecasting, reporting and/or budgeting would be effective in helping them achieve greater success

94%Of CFOs/finance leaders feel that automating manual tasks would be effective in helping them achieve greater success

9/10 92%Of CFOs/finance leaders say better aligned skills in the finance team are needed

Source: Deloitte Canadian CFO/Finance leader survey, 2016

Private company growthThe evolution of a typical private company begins with a start- up stage, where growth is slow, but steady. This is followed by a stage of rapid growth in the first five years of operation, after which the growth curve levels off as the company reaches maturity.

Many private company finance leaders anticipate the need for their teams to mature and acquire greater competencies as the business grows.

Leading private companies are investing to modernize finance

All private companies can build finance’s capabilities by focusing on three critical needs:

1. Improving the efficiency of reporting

2. Providing better operational insights

3. Building a stronger, more client-focused finance team

Reporting to stakeholders consumes so much of finance’s time because of:

Automation Most teams still rely heavily on manual journal entries

Disparate systems Many companies use multiple disparate systems in the financial close and reporting cycle

Lack of communication People involved in the reporting process are often unclear about the work done by others and how their work interrelates

1 Improving the efficiency of reporting

Overuse of spreadsheetsAlmost all CFOs and their teams use spreadsheets for financial reporting, forecasting, and providing financial insights—while useful tools, as businesses grow and become more complex, there is increased risk of corruption, version control and general errors.

1 Improving the efficiency of reporting

Solutions are availableA growing number of finance teams are replacing spreadsheets with cloud- based software, planning and forecasting tools, and data visualization tools to automatically generate data and provide end users with the ability to drill down into that information.

Solutions are feasibleThe tools available to connect the financial process across the organization have changed dramatically in recent years. Finance leaders who research and assess the options currently available will likely find that the time, effort and money needed to implement tools to automate processes, embed control, and empower end users is significantly less than they expect.

1 Improving the efficiency of reporting

Questions to consider:

1. What is your finance systems strategy?

2. Is this system right for me?3. When should I adopt?4. How do I implement?

Private company finance teams produce volumes of static spreadsheet reports as different users want information about different aspects of the business.It takes a significant amount of manual effort to adapt/revise each report to meet users’ needs.

2 Providing better operational insights into the business

2 Providing better operational insights into the business

Data visualization tools can be used to bridge the translation gap between finance and the business owner and other leaders and allow for business conversations.

These tools enable finance teams to reposition and repurpose the data they collect to present it in a way that is more meaningful and clearly present the business’s performance drivers in a user friendly, more meaningful manner.

Many finance leaders have a hard time:

1. Developing and retaining their current team members

2. Finding the right people, at the right price, to fill gaps

3 Building a stronger, moreclient-focused finance team

Tactics to build a strong team include:

1. Better performance management processes— including clear performance goals that team members are also evaluated against and stretch targets for each level/role

2. An increased focus on talent development and continuous learning—including a formal learning and growth plan for each level/role

3. Clear succession planning

3 Building a stronger, more client-focused finance team

As the business growsCanadian private companies tend to grow rapidly in their first five years of operation, after which they often lose momentum. However, many private companies create a new growth cycle through a disruptive event.

An unexpected change in market conditions

Every private company will face a major disruptive event at some point in time

A major acquisition or divestiture opportunity

Transition to a public company

The need for new financingthrough private equity

Transition of ownership

Finance can’t afford to wait to consider how to deal with disruptive events When private companies encounter disruptive events, the finance team’s capabilities will often determine its success in managing those events. If unprepared, finance can become a bottleneck to the business, limiting, and potentially degrading, its ability to capitalize on the event, potentially resulting in a devaluation of enterprise value.

Finance can’t afford to wait to consider how to deal with disruptive events These events can arise suddenly, and companies often have a limited amount of time to take advantage of them.

87% of finance teams already struggle to keep up with their current workload. Dealing with disruptive events has the potential to significantly increase the demands on finance.

Finance can’t afford to wait to consider how to deal with disruptive events Companies need to determine—well in advance—what they need to do to become “event ready” and then take the steps to build the required capabilities.

Finance has a key role to play in successfully managing disruptive events

Disruptive events put pressure on companies and their finance teams, quickly revealing any weaknesses in people and processes—particularly with respect to the allocation of time and effort required to deal with these new demands. To be prepared, finance leaders need to perform an impact analysis and readiness assessment well before a disruptive event arises.

Readiness assessment and impact analysisThe readiness assessment should include the likelihood of the scenario occurring and an assessment of the time, effort and financial investment required to deal with the new demands that will impact the financial processes, technology and talent.

The CFO/finance leader will then need to determine where the gaps exist and which can be improved upon now.

The path between the concept and reality of the event is always shorter than expected. It is always better to perform the impact assessment and perform the tactical elements required to move the finance team into a better state to be able to deal with an event in advance.

But how many finance teams are actually preparing themselves?

Unfortunately, many companies believe they can wait until a disruptive event is on the horizon before investing to build their finance team’s capabilities—and building those capabilities almost always takes longer than expected.

Having a plan to modernize the finance function is important under normal growth cycles.But when disruption occurs, a mature finance team isn’t just important—it’s critical.

Read the full reportFinance trendsModernizing finance in private companies www.deloitte.ca/financetrends

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ContactMichael Goodfellow Partner, Audit Advisory +1 (416) 643 8027 mgoodfellow@deloitte.ca

Bruce Chin Partner, Audit Advisory+1 (416) 643 8949 brchin@deloitte.ca

Mike Runia Partner, Deloitte Private+1 (613) 751 6693 mrunia@deloitte.ca

Mark Wayland Partner, Deloitte Private+1 (416) 601 6074 mawayland@deloitte.ca

Hitesh Peshavaria Partner, Audit Advisory+1 (416) 874 4446 hpeshavaria@deloitte.ca

Brandon Weekes Partner, Audit Advisory+1 (416) 775 7203 bweekes@deloitte.ca

France Boudreau Partner, Audit Advisory+1 (514) 393 5170 fboudreau@deloitte.ca

Kari Lockhart Partner, Audit Advisory+1 (604) 640 4910 klockhart@deloitte.ca