What is FinOps?
FinOps stands for finance operations. It is an umbrella term for finance process frameworks and digital tools.
Some of the most common traditional financial processes are liquidity planning, recording transactions, reconciling payments, keeping track of accounts payable/receivable, paying salaries, forecasting, and closing accounting books.
In the buzzier, newer world, we also hear more and more about end-to-end processes, such as record-to-report, order-to-cash, or source-to-pay, instead of horizontal processes.
FinOps, Then and Now
One reason for the progress toward end-to-end processes was that digital solutions got powerful enough to process them. Over time, internet-based tools could carry the server power needed to conduct formerly manual and segmented activities throughout all stages in one place.
At first, companies hosted IT services and hardware resources, monitored local networks and updated company-built systems themselves. SAP built its businesses to become one of the largest software houses based on this initial wave of digital innovation of FinOps.
However, starting about a decade ago with the gradual adoption of cloud services, the responsibility for conducting these tasks switched from in-house to the online server providers. Nowadays, modern businesses no longer hold physical servers on their premises, and Google, AWS and Azure have become central parts of most companies’ finance operations.
Even if you are not specifically IT-driven, there is a high likelihood that one of those providers powers your favorite platform for banking, spreadsheet planning, billing, or accounting.
The Culture of FinOps
The thing is, FinOps also refers to a shift in culture from compartmentalized input-output operations to end-to-end processes.
Take source-to-pay, for example.
Once the buyer requests approval, the finance department or their software logs a purchase order. If purchased, the purchase order, the bill, and the payment receipt come together via the same workflows and tools. Meanwhile, a whole array of banking and accounting processes care to properly document, account, and control for the good or service purchase.
Most of these commonly known financial tasks are now fully digitalized. Also, processes are not compartmentalized anymore but rather steps of a more extensive and integrated procedure with shared responsibilities.
FinOps culture is a substantial change of mentality into constantly looking to optimize your financial operations by having the most cost-efficient and comprehensive tooling possible.
How FinOps Principles Can Inspire Any Business
There are two elements inherent to the FinOps culture that modern financial managers can and should adopt, regardless of their business areas: automation and efficiency-driven tooling.
Automating manual tasks is essential to catch up with competitors and react faster to any market mood shift.
Moreover, even though being data-driven is a recurring mantra nowadays, there is only so much one can do if all your company’s critical metrics are collected, processed and analyzed by hand.
By allowing computers to take over demanding and repetitive tasks, you avoid error-prone human routines while making your internal processes faster, more transparent and more informative.
So what are some of the current processes you could enhance by following the guidelines from FinOps culture?
10 Tasks You Should Automate Today
- Liquidity Planning Liquidity planning is a delicate topic: it is one of the main reasons companies go bankrupt, yet not enough managers dedicate their time to it. One traditional method is to ask your accountant to prepare your cash flow report, which can take months. Plus, forecasting is even more challenging when you lack real-time insights into your balances.
- Invoice Processing The more complex your operation, the more invoices you have spread across your team. Assembling them is a constant mission that requires close contact with your colleagues. Finally, the price of manually processing those documents is usually above 15 euros per invoice.
- Pre-Accounting Bills reconciliation is widely known as the most time-consuming task in pre-accounting. After searching for all pending documents, you still need to sit and match the paperwork to each corresponding payment before sending the tax report to your accountant. Depending on how many transactions your business deals with, this can take days or even weeks every month.
- Investor Reporting Equity investors and banks need transparency and credibility. This requires reports on all of your operations, financial health, and feasible projections for your future. One error in manually building this file can cost your whole pledge.
- Financing If you choose to expand your business via traditional institutions, you must prepare for a lot of back and forth. Regular banks usually have non-inviting apps and require lots of in-person meetings. Answering your financing request can take several months, and it is unlikely that you will be offered a very flexible condition.
- Centralizing Payments It is safe to say that most, if not all, businesses already have a considerable number of transactions done online. However, such automation is hardly effective if you need to skim through several bank apps to pay suppliers, employees, and pending bills separately.
- Managing Balances It is only possible to take complete control of your company if you are up to date with your balances. The problem is that, with automatic debits and more than one bank account (usually the case), you can never have a true real-time notion of your cash position if you don't manage to have all your balances in the same place.
- Team Communication Financial managers lose a lot of time dealing with teammates' expenses. Many tasks require administrative control and decision, like authorizing payments, keeping track of expenditures, searching for invoices, or reimbursing transactions. Managing to optimize such communication channels is a challenge for any administrator.
- Tracking Accounts Receivable Your business needs to keep track of potential missed payments, goods sold and services delivered. This is where aging reports show overdue payments older than 30, 60, and 90 days. The best-performing companies automatically populate aging reports based on delivered orders which have not been automatically reconciled with actual payments.
- Employee Spending When employees have some degree of liberty in making payments for the company, it is easy to lose track of those expenses. If they are always searching for reimbursement, you will get lost with dozens of invoices to audit and pay back. In parallel, if they have direct access to the company account, you can be left with recurring payments that continue happening long after those employees have gone.
Convinced that automation is the way through, the task is to equip yourself with the most efficient FinOps software.
How to Pick the Most Effective FinOps Software
Cost efficiency is the mantra when searching for software to comply with end-to-end FinOps principles.
There is a myriad of excellent solutions out there that will certainly solve your needs in financial management. The thing is that most available platforms are disjointed systems.
Finding a solution for one or two of those automatable gaps in your operations is relatively easy. But it is undeniable that bundling all your management in one place would be the most efficient decision in the long term. In that sense, complete finance management systems outperform niche expert tools.
If you understand that FinOps culture is something you would like to embrace at your company and that FinOps-oriented software is the way to go forward, take a look at Friday Finance. In one place, you will find a comprehensive pre-accounting feature, an advanced forecasting algorithm, an in-app bridge with private capital investors, a one-click payment tool, and an integrated team communicator, among others.
Let Friday Finance be your army of one in management tasks and start simplifying your finances today.