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How SMEs can master the art of operational finance

It’s a sad reality that many small and medium enterprises (SMEs) fail because of money problems. 

Specifically, many go under due to an inability to control expenses, or a lack of oversight on just how much revenue is being generated and whether this is enough to cover expenses. In Singapore—where SMEs make up roughly 99% of all enterprises and employ about two-thirds of the workforce—cash flow issues and other liquidity risks are among the top 10 challenges that SMEs face.

This is where operational finance, or operational accounting, comes in.

It is a crucial component of business that deals with the financial aspects of a company’s operations.  By setting up proper processes and workflows, operational accountants help ensure that a company’s payments—whether from customers, to suppliers, or to its own employees—are timely, accurate, and efficient. This makes it easier for the business to maintain a solid financial footing.

More than just regulatory compliance

Operational accounting serves more than just a compliance function. 

When done right, it can be a powerful business enabler. When done carelessly, it hurts a company’s relationship with its customers, with its suppliers, and even with itself. 

The pandemic has made it even more urgent to do operational accounting right and maximise available resources. It has also reshaped the world of operational finance: now and in the years to come, there will be fewer manual processes, heavier reliance on real-time data, and quicker accounting cycles. 

Roadblocks to a more efficient workflow

However, for many SMEs, the operational finance side of things remains ripe for improvement. 

It’s completely normal for a business owner to don many hats especially if they’re just starting out. This may work for a time, but it just isn’t a scalable way to go about doing business. At some point, founders are going to have to delegate. But the reality is that many business owners hold on to the accounting function for too long. Not only does this take up the founder’s valuable time; it also runs the risk of making the accounting process messier than it has to be and more stressful come tax season. 

Because the owner is being pulled in a million different directions—working on improving the product, making sure customers are happy and suppliers are paid, seeking out potential investors, etc.—there is also a high likelihood for lapses. It’s easy to forget things like billing customers and sending out invoices on time when you have too many things on your mind. This also leaves very little time to sit down and reassess existing processes. 

Bank reconciliation, for instance, is a basic part of accounting that many first-time entrepreneurs fail to pay attention to. This entails looking at bank statements and making sure there’s enough money to cover every single expense item, and making sure that the number shown on the accounts match the amount on the bank statements. 

Many of our clients, when they first come on board, do not have this step baked into their processes. Instead, what they will usually have is a list of invoices and payments they’ve made, but this information is rarely linked to their actual bank accounts. Majority also have manual processes, tracking things using Excel spreadsheets and uploading these onto Google Drive or Dropbox. As the company grows and the number of transactions multiply, this manual method becomes even more tedious, time-consuming, and prone to errors.

There is usually some resistance to change in the beginning, but it’s important for business owners to understand that there are definitely better, more efficient ways of doing things. SMEs in Singapore can even tap government grants to help cover the cost of digitalising.

Once you’ve decided to get your house in order and improve your operational finance process, there are best practices you can follow. Here, we’ll share a few that have worked for us and for our clients.

Best practices in operational finance

1. A change in mindset

To leave old, inefficient ways behind, SMEs must acknowledge two important things. 

First, they must begin to see that improving their operational finance is a necessary investment in the company’s well-being. It is more than just complying with regulations; it is a way to make the company as efficient as it can be. By serving planning, controlling, and directing functions, operational finance can help steer the business in the right direction. 

Second, they must accept that there are better ways of doing things, and that these newer methods are, in fact, very accessible. 

More than half of our clients will come to us with manual expense processes. For reimbursements, for instance, their employees fill out an Excel spreadsheet at the end of every month, tally up the numbers manually, and submit receipts by pasting these onto A4 pieces of paper that are then stapled together. 

When we suggest new ways of working, we’re usually met with some resistance, and this is understandable. After all, inertia is a powerful force. But before a team can improve their operational finance, they must understand that automating and digitalising their processes will actually lead to cost and time savings. 

Note that it is also important to get everyone to buy into this idea. An efficient system that nobody uses is almost as bad as an inefficient one. Get your team on board and make sure everyone’s diligent about submitting requirements on time.

2. Assign one person to stay on top of things

For the sake of accountability, simplicity, and efficiency, assign one person to handle the process, and make sure that suppliers and customers know who to contact.

For most of our clients, it’s usually the founders themselves serving as operational finance gatekeepers. Some bigger clients may have a dedicated person in-house making sure that, whenever a request for payment comes in, they’re being invoiced for a bill that is legitimate. 

Regardless of who assumes the role—it can be the founder, or even someone from sales—what’s important is that this person has a good overview of the company. One way to ensure they have full visibility is by using a cloud-based accounting software like Xero. Because it’s all in the cloud, they have access to up-to-date, relevant data anytime, anywhere. 

3. Find a workflow that works for you

To minimise errors, it helps to establish a workflow and automate routine processes. 

For instance, we usually recommend that clients set up automated reminders for expense reimbursements through Xero and Dext (formerly Receipt Bank). Once this has been arranged, users simply need to take a photo of anything they want reimbursed and submit it to Dext. Before the monthly cutoff for reimbursements, the system will automatically send a reminder that the cutoff date is approaching. Once the requests are submitted, the consolidated reports are sent to an approver, who then either approves the reimbursement or asks for more information. 

This is a very good standardised operational finance workflow that we really recommend to all of our clients because it saves so much time. If you think about how long it takes one employee to submit things the traditional way—by filling out a spreadsheet, tallying figures manually, pasting receipts onto paper, stapling together said pieces of paper—in total, that’s about an hour or so each month. It may not seem like much at first, but things like this add up. If you have five staff members doing that every month, that’s five working hours that could have been spent on tasks that actually move the needle for your company.

It may also be a good idea to set up automated email reminders for customers and suppliers. With our system, for instance, there’s no manual intervention when it comes to reminding people that a payment cycle is coming. An added bonus of doing things this way is that it takes the awkwardness out of reminding late-paying customers to settle overdue fees.  

4. Go digital

This piece of advice may be a bit of a cliché now, what with all the talk about how the pandemic has accelerated digitalisation, but that doesn’t make it any less sound. The thing is, now is the perfect time for SMEs to take advantage of digital technologies. Cloud accounting, for instance, is already redefining small businesses. 

Aside from automating email reminders and simplifying payments, going digital makes it easier to collaborate and minimises human error. In our case, using the same system that our clients are using saves us from doing a lot of redundant work. It also decreases the likelihood of human error because the platform can tell if a reimbursement request is a duplicate.

We saw this increase in efficiency and cost-savings in our work with one of our clients, ACE video. Their platform lets people request for personalised greetings from celebrities and influencers around the world. Initially, they were using traditional bank transfers which would sometimes cost more than the actual influencers’ fees. We tried to come up with a better solution for them and finally decided on TransferWise, which has a batch payment function. Because TransferWise integrates with Xero, a payment confirmation slip also automatically gets sent out once the transfer is made. 

Another reason to go digital? It scales well. We have a client who started working with us back when they only had three employees. Now that they have about 70 employees, they’re still using the same system that we recommended at the start. This is because digital scales well. When the process is automated and seamless, it doesn’t matter whether you have one or 100 different transactions; the process will work the same way.

The right tools + expert advice

At Harvest Accounting, we provide more than just the tools of the trade; we let you in on the tricks, too. With access to Xero and Dext, coupled with our well-considered advice, insight, and feedback, we can help make operational finance as effortless as possible for SMEs

Whereas more traditional accounting firms may simply focus on compliance and use clients’ existing systems—e.g., Excel spreadsheets, Google Drive, Dropbox—we go the extra mile and recommend ways to make your accounting process more efficient. 

To master the art of operational finance, start by following these best practices. It may take a while for you to get used to new systems and processes, but as Ralph Waldo Emerson once wrote, “Every artist was first an amateur.” And if you need an art teacher, we’re here to help. Get in touch with us today.

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