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How Processes and Finance Intersect in Business

Posted By Administration, Wednesday, April 4, 2018

Every business is a collection of processes working together in harmony to help create a better outcome. Without useful processes that employees can follow, the operational efficiency of a business falls apart and eventually creates anarchy inside the organization, where no one knows what is going on.

The same can largely be said about finance. Without sensible policies, smart approaches and well-intended processes, the finances of the business begin to come apart at the seams.

Purchasing Procedures

The larger the company, the more involved their purchasing procedures tend to be. While they may have started out dealing with a single supplier for everything, it later became obvious when a procurement specialist came onboard that this wasn’t the most efficient approach to follow for best results. That can be said whether seen from a product range, pricing, procurement availability or single point of failure standpoint.

When a strong process is created that governs how major purchases are reviewed, researched, put out to competitive bidding, deals structured and purchase completed, it helps avoid costly mistakes that ultimately hurt the profitability and bottom-line of the company. To avoid expensive financial mistakes, it is a good idea to have someone in the company who is well qualified in the subject of finance.

Studying for an online master of science in finance provides a solid financial background to rely upon in many business situations. The program at Northeastern University provides broad financial knowledge covering corporate finance, financial management, statistical analysis, and investing. The Northeastern University Online course is also easier to access because it is built around studying from home (or the office) in free pockets of time.

Efficient Accounts Receivable

With cashflow being critical to businesses, having good processes and procedures for staff to follow with accounts receivable frees up senior qualified finance staff to focus on financial planning. While cash flow forecasts are useful to follow, when the finance team doesn’t follow correct procedures to build relationships with customers, so they can chase down debts and pull in payments promptly, the accounts receivables can quickly get out of control.

While receivables sit on the balance sheet as an expected asset, at some point they must be written off when confidence fades leading to serious doubts that the balances are collectible. Following solid financial processes reduces the likelihood of bad debts because more ledger accounts are cleared ahead potential business insolvencies. The last point is especially true during a recession where a steady hand must be kept on the receivables to avoid steeper losses.

Financial Projections

Even with reliable financial projections via managerial accounts on special projects or a cashflow forecast for the central business activity, following dependable processes is key. Without a consistent set of procedures to develop all the information sources to create a cashflow forecast, accountants are left scrambling for accuracy.

New investments using free cash based on a semi-accurate cashflow forecast avoids excess cash sitting idle losing money to inflation. Therefore, an improved forecast and, by extension, effective processes, end up indirectly making money for the company because it better informs investment decisions and avoids excessive lock-up periods on short-term investments.

The process isn’t everything on the financial side of a business, but it certainly helps avoid problems. Without processes that managers can rely upon and other staff can follow, a business won’t run efficiently and momentum is lost in the pursuit of growth and greater market share.

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