30 Jun Bridging the Finance and Operations Gap
Although most businesses strategically align finance and operations, as companies grow and mature, an inevitable gap develops between these and other functions. While tightly integrated at the start-up stage, the division of expertise needed to successfully manage growth leads to unique leaders for each function. In this guide, we discuss bridging the finance and operations gap.
Where’s the disconnect?
Start-ups and small companies are less prone to a finance-operations gap than larger companies, often because the business leaders wear multiple hats. As companies grow, they typically add new leaders dedicated to a single function and add departments to support these, so hyphenated titles become the exception rather than the norm. As this happens, finance and operations teams talk less frequently, and when they do talk, they’re often using a different vocabulary. In addition to day-to-day accounting, finance leaders are focused on managing assets and liabilities, budgeting, and financial planning for the business.
Operation leaders are rightly focused on the operations of the business and alignment with the business plan. Often, finance and operation leaders use siloed tech stacks and can’t focus on KPIs outside their areas, for lack of access and a way to put data in context.
Common sense dictates cash flow influences how much inventory a company buys, and when. Operation leaders need to know how much working capital is available, so they can maintain inventory levels and make data-driven decisions. Likewise, finance leaders need to know what’s going on in operations as that will affect liquidity. As well, the working capital of the entire supply chain can be just as important as an individual company since that can affect both operations and finance.
Knowing how much capital is available also impacts organizations where the inventory is human talent rather than goods. Operations needs to know if the company has the financial resources to recruit, hire, and train people—
knowing in some cases it may be months before new hires are fully profitable.
The challenge is that the business models used by operations often aren’t aligned with financial plans and forecasts. Operations uses applications in their tech stack that are disconnected from the finance tech stack, or worse is using standalone spreadsheets to create modeling scenarios.
In summary, two root causes for the disconnect are lack of communication and lack of visibility. This disconnection metastasizes over time as companies grow and add more trading partners on both the supply and demand sides.