When Derek Yung was hired as vice president of finance and strategic planning at NexTag a little more than a year ago, the privately held online price-comparison company had no strategic-planning processes to speak of. NexTag\u2019s owners reported to the board quarterly, and kept most of the information about the company\u2019s performance \u2014 and what they expected it to be \u2014 in their heads. \u201cThere was a lot of collaboration among the five people who controlled the company,\u201d says Yung, but outside that group there was a \u201clack of accountability\u201d and ownership.<\/p>\n
\u201cThat works when you\u2019re small,\u201d Yung continues, but today NexTag\u2019s not small. The company makes money by charging retailers a fee when shoppers click through to their site from NexTag and buy something. Those fees add up, and when NexTag was purchased four years ago by a private-equity firm, it was valued at $1.3 billion. NexTag now earns $200 million annually, and \u201cfive people can\u2019t know everything about a $200 million company,\u201d Yung says.<\/p>\n
\u201cWe were good at telling you what happened yesterday \u2014 how many clicks Sears got and what we charged them \u2014 but how that rolled up for the month and how that reflected plan, that didn\u2019t exist,\u201d says Yung. NexTag used Great Plains software to report financial data. Other reporting systems were custom-built for each business function and produced spreadsheets that were consolidated manually to produce reports. Yung\u2019s mission was to automate that process. His goal: to give the company the timely information it needed to make decisions based on good financial insight.<\/p>\n
Yung chose Host Analytics, a software-as-a-service (SaaS) business-analytics provider with budgeting, consolidation, and reporting capabilities he equates with Hyperion\u2019s and Cognos\u2019s \u2014 but with the lower cost of entry typical with SaaS. \u201cI didn\u2019t want to invest in IT for financial systems,\u201d he says.<\/p>\n
NexTag\u2019s finance department now provides monthly performance reports to all internal P&L owners, a report on actuals versus plan for the current and prior year, and a monthly packet that goes to the board. \u201cWe set up the reports in Host Analytics once,\u201d says Yung, \u201cpress a button, and there they are.\u201d He believes automation will enable finance to do more with less and focus on business strategy.<\/p>\n
The Myth of Automation Inside businesses in general, expectations for the CFO are rising. But what frequently stands in the way is the time and effort it takes to cobble together information from operational silos. And not only do those labor-intensive processes keep finance from the high-value work their organizations want, they can create time lags. \u201cWhat kind of decisions can you make with information that\u2019s out of date?\u201d asks Forrester principal Paul Hamerman.<\/p>\n \u201cAs the organization gets more complex, it takes longer and longer for the reporting software to take its snapshot of the numbers in the database,\u201d says Heather Meister, a financial consultant and CPA at DLC, a management consultancy. \u201cWhen people come in to work in the morning, that snapshot no longer matches the general ledger.\u201d That can lead to bad decisions. \u201cYou could think you have a cash-flow problem when you don\u2019t, or don\u2019t when you do,\u201d she says.<\/p>\n While automation is the obvious solution to these problems, every technology has its limits.<\/p>\n \u201cFinancial reporting will never<\/em> be fully automated,\u201d states Gabe Zubizarreta, founder and principal of<\/strong> Silicon Valley Accountants, a boutique CPA firm. \u201cSay you tell a salesman he\u2019s going to get a quarterly bonus if he sells X units. By the second month, he\u2019s halfway there. Should you record that bonus for the quarter? There\u2019s no right accounting answer. Maybe recording that puts you a little below your profit estimate so you don\u2019t record it. Maybe you do. It takes human judgment. You can\u2019t automate that.\u201d<\/p>\n Complexity makes report automation an ever-receding target. \u201cThe more complex the business, the more unique and separate the financial transaction systems that exist within it, the more manual journal entries are required,\u201d says Bruce Myers, a managing director with AlixPartners, which specializes in IT transformations. \u201cWith companies constantly making acquisitions, there are always unique systems being integrated.\u201d And while they\u2019re being integrated \u2014 which, in the case of large enterprise-resource-planning (ERP) systems, can take years \u2014 companies have no choice but to report manually.<\/p>\n In large, global companies, \u201cyou\u2019ve got people on the other side of the planet that have to report,\u201d Zubizarreta says. According to KPMG partner Hakan Aytekin, \u201cWe see [global] companies typically not performing reconciliations on certain balances\u201d simply because it\u2019s too time-consuming to check the information coming from all those ERP systems.<\/p>\n The business units in different countries, says Zubizarreta, \u201chave different rules, different products, different warranties, all combined together. It\u2019s a mythical world in which you get everything on one system and everything is automated.\u201d<\/p>\n This is a huge problem for those large, global companies. But for small and midsize businesses, fully automated reporting may be less chimerical.<\/p>\n Stitching Together a Better Report Maher\u2019s reporting software is provided by Xero, a SaaS QuickBooks Online competitor. Xero has report templates for P&Ls, receivables, payables, budget summaries, general ledger, and cash position statements, among others. The main challenge for small business owners, says Xero president of U.S. operations Jamie Sutherland, is \u201chaving insight into your cash position. That helps you to know what\u2019s coming down the pipe so you know if you can hire that next employee to help propel the business.\u201d<\/p>\n Maher is now running his business on three SaaS systems: Shopify, an e-commerce platform connected to the Vend point-of-sale system, flows into Xero. It all costs Maher under $200 a month. Of course, Taylor Stitch is not as big as Abercrombie & Fitch. \u201cIf I was,\u201d Maher says, \u201cyou wouldn\u2019t be speaking with me. I\u2019d be fly fishing somewhere.\u201d<\/p>\n Why Did I Buy That ERP System? ERPs are loaded with functions that businesses never use. They have payroll, but most companies outsource that. It\u2019s the same with other ERP functions. \u201cIf the cost of automating the accounting for transactions in the ERP system exceeds the benefit of saving [the effort] of manual entry and consolidation, it may be difficult to justify spending the money,\u201d says AlixPartners\u2019s Myers. \u201cThere\u2019s a lot of value that finance can drive more than worrying about trying to eliminate the marginal spreadsheet or manual journal entry.\u201d<\/p>\n There are literally scores of report-automation tools on the market, ranging from SaaS tools like Xero and QuickBooks Online for small operations like Maher\u2019s, to more robust and functional systems like BlackLine Systems and Host Analytics for midsize companies, to giant ERP systems scaling from cloud-based NetSuite to on-premises SAP and Oracle. They all can produce reports, and so can Excel. \u201cThe main thing is having a larger view of what the financial function should do for the company,\u201d says Yung. \u201cA fancy report that looks great but doesn\u2019t help the business because you don\u2019t understand what they need, that\u2019s useless.<\/p>\n \u201cSometimes,\u201d Yung says, \u201cyou just have a meeting and walk through all the information.\u201d<\/p>\n That may not be high tech or automated. But it might just be very much appreciated.<\/p>\n <\/p>\n
\n<\/strong>CFOs want to be strategic. As cloud provider Intacct CFO Marc Linden says, they want to spend less time on the \u201cnuts and bolts of accounting\u201d and more time evaluating new business models and opportunities.<\/p>\n
\n<\/strong>Mike Maher, who after graduating from business school in 2007 couldn\u2019t find a shirt that fit the way he liked, began selling custom-made shirts out of his apartment about three years ago. In March 2011, he and his partner opened Taylor Stitch in San Francisco, and this year he expects to sell between $1.5 million and $2 million in shirts, jeans, khakis, and hats. His balance sheets were done in Excel. \u201cIt wasn\u2019t pretty,\u201d he says, \u201cbut it worked for us.\u201d Now, he says, Excel is \u201cobsolete in our lives. It\u2019s one less thing to deal with.\u201d<\/p>\n
\n<\/strong>If Taylor Stitch was Abercrombie & Fitch, Maher could be fly fishing, secure in the knowledge that his ERP system would churn out all the reports he needed. But ERP systems, despite having had that capability for decades, are never configured for the unique needs of the businesses that deploy them. \u201cI\u2019m working with a company now that draws information from 14 different ERP systems,\u201d says the SVA\u2019s Zubizarreta. \u201cAnd you\u2019re going to tell me you\u2019re going to push one button and get all the reports you need? ERP has never fulfilled that promise.\u201d<\/p>\n