Decentralisation of departmental budgets will drive effective cashflow management at a micro level, allowing finance managers to look out and up, write Kevin Philips, CEO of forecasting firm IDU.
Doctors have patients who insist on Googling their symptoms before their appointment. IT guys have users who troubleshoot their own devices instead of just turning them on and off again. And the accountants' equivalent is surely the line manager who takes a creative approach to managing their budgets – with or without the help of Google!
And yet, in an increasingly decentralised business environment, you're probably being required to give more and more free rein and decision-making ability to your non-financial managers. However, certain specific functions raise questions about the strength of the argument to decentralise.
For example, cashflow. This, in essence, is a corporate or group balancing act performed by treasury or finance managers at head office, so one has to ask is it really necessary, or wise, to try and push this down to a cost centre level?
While decentralisation might not be a silver bullet for all business challenges, as a principle it remains a solid cornerstone of business debate. So if this is the case for your business, how do we achieve effective implementation without the complexities? Let’s explore that cashflow example.
Cashflow management is not that dissimilar to taking a car trip. Your department budget is the fuel in your tank, which is based on your planned journey. If you don't use your fuel efficiently, say you take the scenic route or drive the whole way in second gear, you risk running out of petrol before you reach your destination. Or, if you don't turn your car on, you won't use any petrol, but neither will you get to where you need to be. What's more, unexpected detours, thanks to roadworks or other really compelling reasons to deliberately go out of your way, can also play havoc with your forecast fuel consumption.
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Here's the kicker though. As a driver, you don't need to know how an internal combustion engine works to understand this.
And it's exactly the same with your non-financial managers. They don’t need to understand cashflow on a corporate level, or indeed any level, they just need to manage their expenses in line with expectations. If they do this then the cashflow will manage itself! It is possible for you to empower them to set, manage and report on their budgets, without them knowing what's under the hood.
Your non-financial managers are able to set and manage their own budgets and cashflow. They are at the coal face, and know what needs to be done and the resources needed to achieve those goals. This results in more appropriate budgets and gives managers the opportunity to be nimble in the face of the unexpected.
The authority and ability to spend also creates ownership and buy-in, leading to better cashflow management, even if it is not dressed up like that. Decentralisation of departmental budgets, and more importantly, managing actual spend in line with those budgets, will drive effective cashflow management at a micro level. This ensures that at the macro level surprises in cashflow are kept to a minimum.
Freed up from the granular tasks and decisions, you'll get the chance to look out and up. Outward at the trends, market forces and world events that impact on the financial health of your organisation. And upward as you develop strategies that will take your company into the future.
Today, more than ever, given the disruption the business world is facing, this is where your attention should be. Being an agile and responsive business that is more competitive in tough economic times and a constantly changing world means you will be a business that arrives at its destination.
About Kevin Phillips
Kevin is the founder and CEO of idu Software. He has degrees in Commerce and Accounting, and started idu with partners James Smith and Wayne Claassen in 1998. Kevin is fast becoming a thought leader in his field, and makes regular comment in the media about current affairs affecting business, as well as accounting, finance, budgeting and software. He is a columnist for Accountancy South Africa and Tech Leader, and has been featured in Sunday Times, Business Day, Enterprise Risk, Succeed and Entrepreneur. He is also a guest speaker on Radio 702, Kaya FM and Summit TV.
Established in 1998, IDU was created by accountants and financial systems specialists to deliver smart software solutions for budgeting and financial reporting across all standard ERP and financial systems. The flagship product, idu-Concept, is specifically designed to overcome issues that get in the way of effective budgeting, forecasting and reporting.