Driving long-term sustainable growth with an effective financial management system

For many organizations, financial management can be a daily struggle as managers and senior executives face significant, diverse challenges, ranging from poor cash flow management to cybersecurity threats.

A sound, effective financial management system provides organizations with a smart way to monitor and control their operations in the short term so executives can meet their long-term vision to invest in future opportunities. Not only are organizations forging a better path to becoming more competitive and prosperous, but they’re also strengthening business practices to withstand rapid industry changes.

However, organizations can supercharge their financial management practices with current advanced technologies such as artificial intelligence, automation, data analytics, system integration and other applications. Let’s face it, it can be daunting to deal with cash flows, budgeting and forecasting, capital investments, financial risks and other moving parts on a constantly shifting financial terrain. Technology integrates these moving parts and enhances efficiency, simplifies complex interactions, uncovers cost savings, improves data accuracy and offers future insight — all of which boosts confidence in choices that must be made.

For financial planning and analysis (FP&A) professionals — whose role in recent years has become more forward-looking and collaborative — implementing advanced financial management technologies is a necessary step to stay ahead in their industries. It’s especially true as organizations cope with complex budgeting, a myriad of regulations, worrisome turnover, intense competition, and volatile markets. The question C-suite executives and FP&A heads should be asking themselves isn’t “Should we do it?” but “How do we get there from here?”

Critical elements of financial management

Financial management includes several key components that organizations must focus on to achieve optimal efficiency, effectiveness, development, production, and expansion. They are:

• Working capital management: It’s a strategy aimed at ensuring that an organization has met its current, day-to-day, short-term financial obligations — such as paying employees and vendors, ensuring systems and facilities are operating smoothly, meeting debt obligations and even covering unexpected costs — while also planning for long-term sustainable growth. Essentially, working capital management is the difference between an organization’s current assets minus their current liabilities. Having an effective working capital management approach is important because it means that an organization can smoothly fund current operations, while positioning itself to expand its business without incurring debt. Working capital management can be broken down into several critical elements.
  • Accounting: This includes cash flow, accounts payable, accounts receivable, inventory management payroll, short-term financing, and revenue management, among other areas.
  • Budgeting and forecasting: With budgeting, organizations are trying to align their financial resources and activities to their strategic plan. In other words, it’s the money they allocate for rent, salaries, inventory, production lines, and other expenses over a defined period of time along with the revenue that organizations hope to bring in during that period. With forecasting, organizations analyze past performance to predict future outcomes such as income and demand for products and services.
• Capital budgeting: Organizations should spend money wisely on long-term investment opportunities that provide the greatest return and to help them with continued growth and expansion. They might ask questions such as: Is an investment worth pursuing? Is it the right time? How will it impact cash flow? What type of financing will be needed? Capital budgeting is a strategic approach to prioritize — i.e. identify, evaluate, select, and monitor — investments so organizations can better allocate money more effectively to reduce risk and increase profitability.
• Capital structure: For organizations to finance their operations and position themselves for long-term growth, they need to combine equity (earnings, savings, stock options) and debt (borrowed money). The debt-to-equity ratio measures how an organization has designed its capital structure and shows the level of risk within it. How organizations design their capital structure may depend on their industry. Some may use higher levels of debt whereas others may prioritize higher levels of equity.
• Risk management: Organizations should be aware of the numerous risks that may affect or disrupt their operations and future growth. Financial risks include liquidity issues, interest rate changes, currency values and credit losses, to name a few. It’s essential to proactively identify, analyze and assess various risks so organizations can strategize and plan accordingly. The objective is to implement sound policies and procedures to control and mitigate risks before they impact the business.

Benefits of financial management technology

Advanced technologies have only recently started to help organizations uncover hidden efficiencies and further streamline operations across financial functions. Here are some benefits:

• Saving time: Automation can help with time-consuming repetitive tasks such as invoicing, reporting and reconciliation, resulting in fewer errors, higher production and efficiency and better compliance. As a result, organizations can better focus their energies on future planning and analysis.
• Making better decisions: AI and advanced analytics can help organizations integrate and gain deeper insight into the trove of data siloed across the enterprise, improving data accuracy and helping to spot trends or anomalies as well as run various scenarios and simulations. This means FP&A professionals and others can gain a wider understanding of their financial environment and make quicker, more-informed decisions as they move forward.
• Deepening collaborations: With different technologies integrating and connecting different financial functions and data, department heads and others can get a “single source of truth” about information, enabling them to move together lockstep.

How Jedox helps with financial management

Jedox has a suite of software solutions that help organizations efficiently and effectively manage, monitor and assess financial resources and activities in a more strategic manner. As organizations grow, they become more complex. Jedox’s solutions help simplify processes, provide more clarity, improve accuracy and save more time so FP&A professionals can focus on their responsibilities: to grow and expand the business, improve their offerings and increase profits. Here are some of our products:

Asset management software: With Jedox’s CapEx software, organizations can automate and integrate time-consuming and manually intensive asset management processes, resulting in fewer errors and more efficient planning, tracking and traceability across cost centers, profit-and-loss statements and balance sheets. CapEx enables organizations to analyze, project and create simulations for any situation, empowering executive leadership to confidently plan for the future.

Operational management software: OpEx software enables organizations to easily track operational expenses round-the-clock, reducing human error and providing comprehensive cost control. Through automation and integration, it frees up personnel to focus on financial planning and analysis rather than toiling over manual budgeting procedures. The software also allows organizations to respond to rapid market changes on the fly and can create scenarios to forecast potential changes to a business before they happen.

Cash flow software: Organizations can improve their cash flow forecasting through a software that harmonizes multiple data sources and simplifies the cash flow statement process by automatically calculating values from P&L statements and balance sheets. With greater insight, executives can track cash flow in real-time and spot potential issues before they arise. The cash flow software also models internal and external drivers such as inflation, interest rates, company expansion, capital expenses, and operational expense fluctuations.

Budgeting and forecasting software: Optimize planning, budgeting and forecasting processes that are often manually intensive, time consuming, tedious and quickly outdated with a budgeting and forecasting software. The powerful, but easy-to-use solution helps organizations create a single source of truth by ensuring that data is accurate, consistent, transparent, up-to-date and accessible across the enterprise.

Scenario planning software: Jedox’s adaptable enterprise performance management solution helps finance teams optimize planning, analysis and reporting. This enables them to make well-informed, critical decisions in a rapidly changing and volatile market. Through a predictive AI and integrated software solution, organizations can run “what-if” scenarios to confidently understand implications of their decisions.