How finance can empower your business to achieve its growth ambitions

By shifting the focus of their finance functions from cost to value, entrepreneurial businesses are charting a course to success.

In brief

• Entrepreneurial businesses are capitalizing on automation and data analytics to empower their finance functions. 
• Funding has climbed up the priority list as entrepreneurial businesses prepare for acquisitions. 
• To develop the finance workforce of the future, entrepreneurial businesses are upskilling their people and fostering cross-functional collaboration.

The finance function plays a critical role in driving the success of entrepreneurial businesses. As well as overseeing day-to-day cash and liquidity management, finance teams help to secure the vital funding that enables businesses to grow and prosper. In their business partnering capacity, finance teams also track performance and provide valuable insights and analysis that are used to guide decision-making and set strategy.

Technological advances, including artificial intelligence (AI), automation and data analytics, are creating new opportunities for finance functions to operate more efficiently while delivering even greater value to their organizations. Nevertheless, many businesses are not yet embracing a bold transformation agenda for their finance functions. In fact, just 16% of finance leaders surveyed for the 2023 EY Global DNA of the CFO Report describe their finance function as delivering best-in-class performance.

Good-quality data is essential for businesses to make effective use of automation, as well as powerful analytics tools. So, they are reviewing financial data for quality and consistency across the enterprise. Once they have a solid data foundation in place, they are using enhanced data analytics capabilities to improve forecasting and scenario planning. They are also deploying these capabilities to enhance risk management and cost reduction strategies, generate greater understanding of the value drivers of the business, and improve the management information that helps to drive business performance. The EY DNA of the CFO research suggests these capabilities are essential since 76% of CFOs say the current challenging market environment is increasing pressure on finance leaders to drive cost efficiencies and hit short-term earnings targets.

By capitalizing on automation and data analytics, entrepreneurial businesses can improve end-to-end processes and initiate a robust, data-driven financial strategy that integrates everyday business scenarios with powerful new insights. 

An example is US-based, family-owned grocer Schnucks, which deployed AI-powered, shelf-scanning robots across more than 100 stores, to generate better insights into its shelf inventory and reduce out-of-stocks. According to research by IHL Group, the total cost of out-of-stocks for grocery retailers globally in 2023 accounted for $1.2 trillion. Not only did this cost hit their top line –  out-of-stocks typically represented 6% of their annual sales – it also undermined their ability to deliver a quality customer experience. 

Schnucks’ robots travel across the aisles of its stores up to three times a day, scanning more than 4.2 million products within the space of 24 hours. They autonomously capture on-shelf data, including inventory levels, the position of stock on the shelf, pricing accuracy and promotional execution. The robots provide comprehensive and frequent real-time inventory data and insights that are integrated into Schnucks’ replenishment system. This has resulted in 14 times greater out-of-stock detection compared with manual inventory checks and a 20% to 30% reduction in out-of-stock items in stores. Another benefit has been enhanced compliance with price tag and promotional execution across Schnucks stores. All round, the robots have helped to deliver powerful new insights that are driving improved financial performance. 

2. Funding growth ambitions

Funding is vital for entrepreneurial businesses that want to grow and outpace their competitors. As well as seeking funding from external sources (including banks, private equity, venture capital and family offices), finance can fund growth by freeing up capital within the business. So, entrepreneurial businesses are drawing on the expertise of their finance functions to meet their funding needs, based on business strategy. 

EY research – Are you harnessing the growth and resilience of private capital? – highlights the tremendous growth of private capital markets over the past decade. What’s more, a sizeable pool of “dry powder” is yet to be invested – around US$3.2 trillion (excluding hedge funds and family office capital). This would suggest that funding is available in abundance. In the near term, however, private capital markets are enduring headwinds in the form of slower global growth, persistent inflation, rising interest rates, supply chain disruption, financial market volatility and geopolitical risks. These headwinds are impacting on capital deployment and restricting the funding available to entrepreneurial businesses.

As they plot a course through 2024 and beyond, entrepreneurs and private business owners will need to carefully manage their cash and monitor their business models to help ensure they deliver sustainable, profitable growth. Working capital management is a key priority and is fully considered as part of the overall funding strategy, along with divestitures and tax. Finance can add immense value to the business by reviewing and improving its working capital position and developing and executing a robust capital allocation plan. It can also look for opportunities to increase organizational efficiency and free up funding for growth, as US software company Optimizely proves. To encourage its employees to spend rationally, rather than exhaust their entire business travel budget simply because it’s available, Optimizely developed an incentive-based expense process. Employees use an internal travel portal to access real-time market information on destinations and receive an allocated travel budget. They can then opt for cost-effective accommodation and travel options, keeping half the savings they generate in the form of travel points. This process has created savings of 31% against budget. 

3. Establishing finance as a business partner

Finance brings the greatest value when it collaborates effectively with other functions. So entrepreneurial businesses are fostering cross-functional collaboration between finance and other functions such as HR, IT, operations and strategy, as well as functional business units. They see this collaboration as way to improve cash flow, lower costs, forecast their financial and risk positions, boost the productivity of their workforce, enable new business models, and find different ways to create value. Increasingly, the CFO is viewed as a key collaborator by senior leaders across other business functions, as well as a strategic partner to the CEO. 

Upskilling is key for finance to excel as a strategic business partner. So entrepreneurial businesses are encouraging their finance teams to elevate their capabilities and competences – for example, by developing new skills in areas such as data science or by following a management development program. Finance teams also require education on sustainability issues if they are to build a robust and disciplined approach to evaluating their company’s non-financial performance, considering a wide range of environmental, social and governance (ESG) factors. In particular, they need to learn how to articulate the company’s objectives and approach to long-term value creation for each stakeholder group. For example, the EY Global Corporate Reporting Survey found that currently just 51% of CFOs believe that their company provides investors with relevant and material reporting insight on the company’s ESG risks and opportunities.

4. Proactively engaging with stakeholders 

To grow and thrive, entrepreneurial businesses must be good at engaging with their stakeholders, including customers, employees, investors and potentially family-owners. During the Covid-19 pandemic, stakeholder management was suddenly both a necessity and a key business priority as business leaders became highly concerned about the wellbeing of their employees and customers, as well as conscious of supply chain issues. Since then, attention to stakeholder management has declined for many businesses, causing issues around meeting (let alone exceeding) evolving stakeholder expectations. Hence stakeholder management is back on the C-suite priority list. 

As a result, entrepreneurial businesses are identifying key stakeholder groups, assigning responsibilities to manage their needs across senior management, and proactively communicating a “corporate story” that is tailored for different stakeholder groups. Since this story will incorporate both financial and non-financial elements, finance is playing an increasingly important role in stakeholder management by becoming an “insights center of excellence”. This enables the business to build trust with stakeholders through proactive and insightful communication – communication that provides full transparency, with no surprises. To enable the finance function to play a value-added role in stakeholder management, entrepreneurial businesses are also professionalizing their investor relations, risk, tax and treasury functions.

5. Implementing dynamic business planning and scenario testing 

Today’s business landscape is changing at a rapid rate, continuously presenting new risks and new opportunities. For this reason, more and more entrepreneurial businesses are moving away from the traditional annual and quarterly planning processes toward more dynamic planning that allows for agile decision-making. They are asking their finance functions to build and stress-test integrated financial scenarios, factoring in cost and revenue forecasts, as well as the likelihood of macroeconomic and government intervention. These scenarios help to boost the resilience of entrepreneurial businesses by enabling them to plan for different events that could impact on their market or operations.

Increasingly, artificial intelligence and machine learning are being used to enable dynamic business planning and scenario testing. As an example, a leading infrastructure company applied machine learning to improve its earnings before interest and taxes (EBIT) forecasting. Previously, forecasts for relevant KPIs (such as EBIT) had been inaccurate, fueling mistrust around the company’s financial planning. Furthermore, the implementation of a rolling forecast was complicated by missing data on which deviations from plans were leading to the overall deviation. As a result, historical deviations could not be excluded from future forecasts, leading to unreliable forecasts. 

The infrastructure company developed a data model for scenario-based planning and integrated business rules, based on segment-specific behaviors, to improve the model’s forecasting accuracy. This led to a self-learning system that improves over time, based on business rules and external factors. The implementation of a rolling forecast and agile planning cycles enabled the company to adjust rapidly to market changes and resulted in a 36% improvement of EBIT forecasting accuracy.

Shift from cost to value

The five priorities outlined above are broadly reflective of the general transformation taking place within finance today. Enabled by technology, the finance function is shifting from a focus on cost, with much time spent on transaction processing, to a focus on value, where most time is spent on analysis and delivering the insights that will empower the business to take the right decisions in the pursuit of growth. 

Significantly, the need for a more value-driven finance function, combined with the explosion of interest in AI tools, increases the importance of data. To deploy automation tools effectively, entrepreneurial businesses need high-quality and consistent data sets. So, they are identifying which data sources they require to achieve their objectives and prioritizing data-cleansing initiatives.  

There is also an imperative to transform the finance function into the finance workforce of the future – which is being driven by today’s complex and fast-moving business environment. Entrepreneurial businesses are far more focused on upskilling their finance functions to add value than they were a year ago. This reflects their desire to draw the right conclusions from their datasets, using analytics tools. Another driver for upskilling is the fact that finance functions are embracing sustainability and other non-financial performance reporting as part of their remit. And as well as supporting sustainability reporting initiatives, finance is helping to set strategic goals around sustainability and measure performance against targets. Inevitably, this requires new skill sets and competences. 

Another skill set that is being enhanced to further enable a value-driven finance function relates to M&A. It is notable that, over the past 12 months, funding has risen up the strategic agenda for entrepreneurial businesses. With inflation easing and interest rates appearing to have peaked, companies are gearing up for inorganic growth through M&A deals.  Over the last two years, finance functions were predominantly focused on relieving the pressure on their margins by optimizing costs  (see What entrepreneurial businesses should look out for in 2024) and raising prices. Now, they are also exploring potential acquisition candidates and developing capabilities in valuation, due diligence and post-merger integration. 

Overall, the five priorities highlight how the finance function is evolving in response to technological change and in support of the growth ambitions of entrepreneurial businesses. Traditionally, finance acted as the “Curator” of financial and accounting activities within the organization, with a focus on collecting, processing and delivering transactional information. Today the role of finance is becoming much broader, however. Empowered by automation and data analytics, finance is enabling entrepreneurial businesses to make better decisions (acting as “The Oracle”), supporting the organization with transformation and change execution (acting as “The Catalyst”), and embedding trust into operations by managing risk and compliance matters (acting as “The Guardian”). It is also optimizing the use of capital across the enterprise (acting as “The Steward”) and continuously enhancing the experience of internal and external stakeholders who consume its financial information (acting as “The Concierge”).