As your company matures, your financial team will also grow and develop, with team members taking on more specialized roles. Some of those roles will focus on financial operations, or FinOps, which has become an integral part of any financial team that’s helping to scale a business.
Traditionally, FinOps has not been a high priority for many businesses, particularly at the startup stage.
“People usually don't invest in their financial suite, because this is not a money-driving department,” says Ramp controller Edwine Alphonse. “We're typically a cost center, not a revenue center.”
However, once companies truly understand the roles and responsibilities associated with FinOps, the case for investment becomes clearer. That’s even more important as organizations continue rewriting their best practices for a “new normal” world of hybrid work and asynchronous, digital interactions.
Strong FinOps creates companies that are more productive and more efficient than their competitors.
While FinOps often grows out of the accounting and FP&A functions, FinOps jobs focus more on building recurring organizational processes than on deep decision-making or pure accounting. Successful management, and a focus on procedures for day-in-day-out tasks and an emphasis on finance automation, rather than the manual processes, is essential to a healthy finance department.
Companies today increasingly need a dedicated person or team thinking about how different tools integrate across the finance department to ensure maximum efficiency.
While moving away from manual processes is a key step in any company’s digital transformation, it also means that the company must now make sure that it is working with the best possible tech partners—and that those partners can integrate with each other.
FinOps is the best function to build a modern, integrated tech stack because it oversees the following:
FinOps focuses on putting processes and tools in place that offer visibility into all business expenses—as they happen. For example, instead of waiting until you have to reconcile receipts to see what your team is spending, you’ll be able to view the spend in real-time. This functionality allows organizations to easily see important data and use that data to make better decisions faster. The ability to make quick, smart decisions is a competitive advantage that can fuel growth as a company scales.
Choosing the right technology partners is one of the most important decisions that startups can make. It’s up to those working in FinOps to conduct due diligence on potential vendors and oversee the crucial onboarding process while also maintaining the employee or user experience. A FinOps manager may also oversee vendor management, to ensure a seamless procurement process and to do so at a price that makes sense.
While the accounts payable team typically conducts the accounting and end-of-month (EOM) close, FinOps can look at the process for areas of improvement using finance automation technology. It’s an area that requires particular focus in the hybrid environment that many teams now work. Nearly a third of finance teams say they’ve struggled with EOM close in a virtual setting.
Optimizing EOM close can create a more seamless process for the year-end close. Ensuring that books always close on time can minimize mistakes and surface potential problems for areas that need attention from management.
By using real-time data on company spending, FinOps can identify areas where enhanced procedures could save companies both time and money. This requires leveraging both new technology and more traditional approaches such as benchmarking against peers and vendor negotiations. These expense management improvements can also help employees feel more empowered over their spending, as they can encourage a healthy spend culture that allows your company to successfully enable decentralized spending and empower employees, while still keeping expense guardrails in place to protect the company. Improved expense management can also help add transparency to financial accountability processes and ensure that the appropriate checks and balances are in place.
By setting rules around expenses and empowering employees to follow those rules, FinOps can reduce waste and improve the efficiency of expense management processes. That allows employees to focus on higher-value work, rather than spending unnecessary time managing their own expenses. It also fosters a better working relationship between employees, managers, and the finance team.
FinOps uses processes and tools to make the tasks of bill payment more efficient and accurate. Using a platform like Ramp, FinOps can harness the power of artificial intelligence to automate bill payments while also maintaining flexibility in payment methods and reconciling ledgers automatically.
FinOps provides operational support for different finance functions, but it does not typically engage in strategic activities, such as:
Capital budgeting requires determining the best time to acquire assets and the best method for funding those purchases. FinOps, by contrast, focuses more on the process of paying for and tracking capital improvements or purchases, rather than the critical, holistic decision-making that goes into capital budgeting.
Risk management requires identifying uncertainties that could impact a business and putting a plan in place to mitigate those risks. While some FinOps activities might improve a company’s risk management, the primary emphasis is instead on streamlining processes and increasing efficiency.
FinOps does not create, build, or execute corporate strategy, but when done properly, FinOps does allow a company to adhere to a corporate strategy without letting the day-to-day tasks of financial management slow down progress. FinOps involves constant iteration, so as corporate strategy evolves, so will FinOps’ processes and approach to optimization.
FinOps provides the up-to-date data that CFOs and other stakeholders use to conduct proper financial planning and analysis. Good financial planning helps optimize the way an organization manages its money and surfaces important insights for future needs. FinOps is not involved in this planning process.
While you may not need a treasury policy early on, it becomes increasingly important to manage capital as your company scales and begins to build up unallocated cash. While FinOps does not manage the capital itself, it can help put treasury policies in place, so that the treasury team can optimize its function.
The sooner a company can begin thinking about FinOps, the sooner that organization can reap the rewards that come with FinOps. In some cases, following best practices around FinOps may start even before a company has hired its first CFO or controller.
“People don’t think about their FinOps function until they are either mature enough or until they absolutely have to,” Alphonse says. “If you want to start right, you need to start investing in your FinOps from day one, because otherwise you’ll just always be playing catch up.”
By focusing on FinOps from a company’s early days, the organization can avoid some of the financial pitfalls and growing pains that come as a company scales. The first step is automating as many financial procedures as possible, using tools like Ramp. Contact us today to learn more about how our solutions can help your organization reach its FinOps goals.