Successful finance leaders do their best work at the intersection of strategic decision-making, risk assessment, and financial stewardship—spearheading an organization’s financial management strategy while ensuring fiscal health and pursuing growth prospects. The C-suite’s strategy discussions depend on the chief financial officer (CFO) to provide a foundation of financial management, delivering financial and operating forecasts and data that shape those executives’ make-or-break decisions. With so much at stake, CFOs and their teams need to be on guard for the top challenges to effective financial management so they’re prepared with strategies to overcome those hurdles.
Key Takeaways
- Effective financial planning requires accurate, timely data analysis and scenario planning, supported by a financial management system for real-time performance monitoring and forecast updating.
- Finance leaders must collaborate with IT to enforce strong cybersecurity measures, including regular software updates and comprehensive staff training.
- Access to real-time financial data is crucial for timely decision-making, necessitating financial management systems that can deliver up-to-the-moment data, overcoming the limitations of outdated software and manual processes.
- Effective cash flow monitoring is vital for meeting short-term financial obligations, requiring transparency into liquidity factors and efficient processes for managing receivables and payables.
Top 14 Financial Management Challenges
Financial management provides the foundation for business strategy and execution—a business function focused on the strategic planning, directing, controlling, reporting, and forecasting of financial activities within an organization. Financial management is crucial for ensuring a company's financial stability, growth, and long-term sustainability. But as a business grows, financial management becomes more challenging and complex, potentially preventing a business from getting the clarity needed to make good decisions. Here are some common causes of financial management challenges facing CFOs and other finance leaders.
1. Precision planning
Having a precise and timely financial plan that you can execute and manage against is one of the most important components of a healthy business. But planning is a discipline that uses a lot of financial information from different sources, making it time-consuming if the appropriate tools and processes to easily gather complete and timely data aren’t in place. What’s more, the planning process won’t help prepare the company for what’s ahead if data isn’t properly analyzed and used to predict and plan for different future scenarios. This can lead to problems such as overspending on the wrong priorities, inefficient allocation of capital and people, and an inability to anticipate future financial needs—resulting in overlooked business opportunities, missed financial targets, and increased financial risks. And solid upfront scenario planning isn’t enough; finance teams need a financial management system to monitor performance in real time and frequently update forecasts with minimal work; otherwise they’ll be too late to kick in those scenarios.
2. Cybersecurity threats
Over the last decade, the rapid increase of security threats and breaches has put financial data in the crosshairs. Once considered the IT department’s responsibility, cybersecurity is a key business imperative requiring close collaboration with finance and other business leaders. Enforcing strong cybersecurity measures for your organization’s most vital information is essential, and finance leaders can contribute by working with IT to make sure that financial transactions and systems are secure. Finance and IT together can assess which information and systems are most valuable and would most likely be targeted by hackers or ransomware. All financial software and systems must be routinely updated, as these updates include safeguards against the latest security vulnerabilities. Restricting access to financial data to only essential staff is also a best practice. Cloud-based systems can help on both fronts, offering native security capabilities, regular and automatic updates, and strong access controls. Comprehensive staff training is another key part of successful cybersecurity strategies, as people are one of the most vulnerable aspects within a company.
3. Real-time data
Gathering financial data can be a time-intensive endeavor. Historically, creating a financial report such as a quarterly sales forecast could take companies a month or more. When leaders needed an update as business conditions changed, it could mean finance teams working late into the night pulling data from around the company. The ultimate benefit is timely insights for decision-makers, but the first obstacle is often just getting the necessary real-time data. Most older software systems don’t deliver real-time data, and many finance teams are still manually pulling their financial information from spreadsheets or systems that are outdated and require lengthy reconciliation. Because timely financial data is essential for accurate planning and overall analysis, it’s important to have access to that up-to-the-moment data as fast as possible. A financial management system with greater access to real-time data is vital to a proactive financial management strategy, as it lets leaders make decisions based on an organization's true financial health and operating performance.
4. Cash flow monitoring
Cash flow monitoring helps ensure that a business has enough liquid assets to meet short-term financial obligations, such as paying salaries, suppliers, loans, and rent. One of the biggest challenges to managing cash flow is transparency into liquidity factors. Without that transparency, you can’t forecast how much cash you will have on hand in the future to ensure there’s enough available to meet your needs. Multiple cash flows from global operations, delayed customer payments, seasonal variations in sales and costs, loan payment timing and terms, and misalignment with revenue recognition or expense accrual can also lead to cash flow challenges. Improving cash flow requires efficient receivables and payables processes as well as high transparency into sourcing and purchasing data for better decision-making.
5. Managing debt
The amount and type of debt a company carries factors into strategic decisions such as acquisitions, expansions, and capital investments. Excessive debt can lead to unmanageable interest payments and financial uncertainty, but smart borrowing also can be essential to invest in growth initiatives and maximize profit. One of the CFO's most important responsibilities is determining how much debt the business can responsibly take on without jeopardizing its financial stability. Interest rate fluctuations, debt reporting and servicing, risk tolerance, and market conditions and competition can all complicate a business’s effort to manage debt. Businesses can optimize their debt position by reviewing and prioritizing debt, managing assets, consolidating loans, regularly reviewing loan terms, and having strong cash flow monitoring to know if payments could be in jeopardy.
6. Tax compliance
Staying on top of tax regulations and compliance is no small feat, especially if you’re a global enterprise. Ensuring compliance in multiple countries with massively different tax rules and accounting standards pours pressure and complexity on finance leaders, since it can lead to fines and legal issues if done incorrectly. Fortunately, more automated systems are available to help companies invest less staff time and expense staying compliant with taxes. Having a central system in which to manage diverse accounting and tax rules and standards reduces the workload and complexity. Businesses can also automate certain processes, such as data collection and reporting, to reduce the risk of errors and improve efficiency.
7. Complex operations
Operational complexity isn’t unusual at large, global enterprises, where there’s typically a large product portfolio and thousands or tens of thousands of employees to manage. The challenge for financial management comes when finance processes and systems mirror that complexity and add to it, rather than providing clarity for business managers. For multinational organizations, managing financial operations across different regions and navigating diverse regulatory environments is of course difficult. But finance leaders can help the organization simplify by identifying appropriate key performance indicators (KPIs), providing consistent and trusted financial data for those KPIs, using consistent measurement methodologies, and providing up-to-date dashboards to help operational leaders understand what’s happening in the business.
8. Optimizing processes
Complex financial operations can stem from inefficient or ineffective processes—often involving manual data entry and a lack of standardization—that can slow down your company’s financial reporting and analysis, leaving the business waiting for insights that could help them improve financial performance. Finance leaders can create a more efficient finance function by focusing on optimization and automation, implementing project management protocols that make workflows repeatable and scalable without bottlenecks. Automation software, including those using embedded AI, can help increase business agility and replace or speed up repetitive and manual tasks such as data entry, report generation, account reconciliations, and invoice processing.
9. Lack of business insights
In any company, the ability to make data-driven decisions, navigate uncertainties, and provide strategic guidance relies on having access to accurate, relevant, and up-to-date business insights. A lack of actionable insights limits decision-making, strategic planning, forecasting, and other key finance imperatives. Timeliness of data and insights is critical, since brilliant scenario planning doesn’t help if a company doesn’t have the insights to know when to kick Plan B into action. Companies rely on finance leaders to analyze and contextualize data for advanced insights such as where capital allocation can be used for the best return or when a product is surging or sinking—all of which can then be aligned with strategic priorities for the business.
10. Manual tasks
Manual financial processes are inefficient, prone to errors, and consume so much time that there's little room for in-depth analysis and strategic thinking. Too often, finance teams spend time on tasks that could be automated, such as invoice matching, and that reduces their capacity to focus on activities that help the business reach its financial goals. Slow, manual processes diminish agility by robbing the company of time to respond to financial results. Manual tasks also are less adaptable to changes in business needs, market conditions, or regulatory requirements. Financial management software with automation capabilities can reduce repetitive and manual tasks, enhance accuracy, and free up people for work that drives growth and contributes to the company’s success.
11. Lack of collaboration
Collaboration between your company’s finance team and other departments is essential for aligning financial strategies with overall business goals and giving operating managers the data they need to make the right calls. Without such collaboration, finance leaders risk making decisions around capital investments, borrowing, cash management, and other budget matters without a full understanding of the business’s needs. Close collaboration with other departments such as human resources and with line-of-business leaders enhances both teams’ decision-making, supports strategic planning, and helps financial decisions align with broader organizational objectives. The starting point is shared and trusted data, making sure leaders in finance and other functions all have access to the same accurate data when they need it.
12. Disconnected systems
A lack of integration between business systems often results from outdated financial software, multiple systems of record, and inadequate technology infrastructure. When core systems are unable to effectively communicate and share data, work becomes more manual and insights become less accurate and timely. Using multiple systems of record creates enormous staff workloads during financial consolidation, as just one example. Finance teams should advocate for integrated systems that allow information sharing across different business functions. The challenge can be keeping such integrations updated and effective if companies are connecting myriad systems including ones running on-premises and in the cloud. But it’s the right goal to strive for. Integrated financial systems enhance accuracy, reduce manual data entry or retrieval, and support real-time insights, giving finance teams the information they need to focus on strategic tasks that contribute to the organization’s success.
13. Sticking to budgets
Building a budget is an exercise in strategic planning, serving as roadmap for an organization’s priorities and outlining how resources are allocated and progress will be monitored. But the budgeting process can go awry when a budget is built on data of questionable accuracy with limited transparency into spending trends. Once a budget is in place, sticking to it requires a lot of transparency into actual cash flow and spending. With clear visibility, management will know when there’s overspending, revenue shortfalls, or demand spikes. Poor budgeting processes can lead to overspending, inefficient resource allocation, and difficulties predicting future financial needs. This can result in missed financial targets and increased financial risks. Using budgeting software, integrating relevant data sources, and leveraging advanced analytics can enable real-time budget tracking and visibility to improve accuracy and responsiveness in the budgeting process.
14. Spend management and cost control
Monitoring and managing spending are critical aspects of financial management, helping businesses understand and control their expenses. But getting the process just right can be tricky, as CFOs must make sure that cost control measures strike a balance—not becoming a roadblock to business performance while also ensuring there’s enough money in the bank to do business. This requires strategic planning and timely monitoring supported by accurate data. Finance leaders need to adopt clear expense policies and intelligent monitoring mechanisms that pull data from all the relevant, integrated systems.
Manage Challenges Easily with Cloud-Based FP&A from Oracle
To stay ahead of financial management challenges, companies need to implement robust financial management strategies and software that can adapt as the business environment evolves. Financial planning and analysis (FP&A) methodologies help organizations accurately build forecasts and allocate resources to seize opportunities and respond to market shocks. With tools for planning, budget formulation, scenario modeling, and performance reporting, FP&A systems extend far beyond accounting. Oracle Fusion Cloud Financials, part of Oracle Fusion Cloud Enterprise Resource Planning (ERP), connects and automates key financial management processes, including payables, receivables, fixed assets, expenses, and reporting, for a clear picture of your company’s financial health. Oracle’s data-driven approach to FP&A lets you tie financial and operational metrics to business insights, helping finance play an active role in driving business success through capabilities such as planning, budgeting, and cash flow forecasting.
Financial Management Challenge FAQs
What is the biggest challenge of finance?
One of the biggest challenges of finance is finding the balance between growth and profitability, as it requires assessing risks, investing wisely, controlling spending, and collaborating effectively with teams across the entire organization.
What causes financial challenges?
A lack of accurate, real-time information is the root source of many financial challenges and problems, usually resulting from multiple financial systems of record, outdated systems and processes, and a lack of transparency into data.
How do you overcome financial management challenges?
Establishing a single source for trusted, accurate, and timely financial data provides a critical starting point for solving most financial management challenges.
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