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Finance Processes

The Finance function operates through structured workflows that maintain financial accuracy, ensure timely reporting, and support sound business decisions. Our processes transform daily transactions into financial insights that drive strategic choices. This section documents how finance work gets done.

Why Document Finance Processes​

Finance is fundamentally about trust. Leadership trusts our financial reports reflect reality. Investors trust our numbers are accurate. Auditors trust our controls prevent material errors. This trust depends on consistent execution of sound processes.

Documentation ensures consistency. When different people follow documented procedures, results are comparable across time periods and between team members. Financial statement preparation by our Senior Accountant in January should follow the same approach as in December, enabling valid period-to-period comparisons.

New team member onboarding accelerates with process documentation. Instead of learning through trial and error, new finance staff can study documented procedures before executing them. Shadowing experienced team members reinforces documented processes.

Process documentation also serves compliance and audit requirements. External auditors review our procedures to assess internal control quality. Clear documentation demonstrates we have controls in place and follow them consistently.

Continuous improvement depends on process visibility. You can't improve what you don't understand. Documented processes provide baselines we can refine as we identify better approaches or as business needs evolve.

Core Process Categories​

Finance processes organize around the accounting cycle and decision support:

Transaction Processing Processes record business activities in our financial systems. Accounts payable captures vendor invoices and payments. Accounts receivable records client billing and collections. General ledger entries document other transactions like payroll, depreciation, and accruals. Accurate transaction processing is foundational—all financial reporting builds on these recorded transactions.

Close and Reporting Processes transform transaction data into financial statements. Month-end close includes account reconciliation, journal entries for period-end adjustments, and financial statement preparation. Quarterly board reporting packages add narrative analysis and forward-looking commentary. Annual financial statements undergo external audit scrutiny.

Planning and Analysis Processes support strategic and operational decisions. Budget planning projects revenues and expenses for upcoming periods. Cost analysis evaluates project profitability and product margins. Variance analysis explains differences between actual and planned results. These processes provide financial perspective on business choices.

Control and Compliance Processes maintain financial integrity. Approval workflows ensure proper authorization before commitments. Reconciliation processes catch errors and anomalies. Internal audit procedures verify control effectiveness. Tax compliance processes meet government filing requirements.

Process Maturity and Standards​

Our finance processes aim for high reliability. Finance is less tolerant of variation than some other functions—there's a right way to close the books, record revenue, and prepare financial statements. Accounting standards and regulatory requirements constrain process design choices.

That said, we still improve processes when we find better approaches that maintain accuracy and control while improving efficiency. Process improvement in finance tends to focus on automation, streamlined workflows, and better integration between systems rather than fundamental methodology changes.

Documentation standards for finance processes are rigorous. We specify not just what to do but the accounting rationale behind it. Why do we recognize revenue at this point? Why do we classify this expense to that account? Documented rationale helps current and future team members apply consistent judgment.

Monthly Close Process​

Month-end close is our most critical recurring process. We aim to complete financial statements within five business days of month-end. This fast close enables leadership to make timely decisions based on current financial performance.

The close calendar specifies deadlines for each activity. AP must complete invoice processing for the prior month by Day 1. AR must finalize invoicing and payment posting by Day 2. Account reconciliations are due Day 3. Period-end journal entries post by Day 4. Financial statements are ready for review Day 5.

Parallel execution happens where possible. While AP wraps up invoice processing, the Senior Accountant starts account reconciliations that don't depend on final AP data. Overlapping activities compress the close timeline.

Pre-close activities during the month reduce end-of-period crunch. We reconcile bank accounts weekly rather than waiting until month-end. We accrue known expenses as they occur rather than estimating everything at period-end. Spreading close work across the month makes the deadline achievable.

The Senior Accountant coordinates close activities, tracking completion of tasks and resolving blockers. If AP is delayed processing a large batch of invoices, the Senior Accountant assesses impact on close timing and determines whether to wait or proceed with incomplete data that gets corrected the following month.

Quality checks happen before releasing financial statements. The Senior Accountant reviews statements for reasonableness—do revenue and expenses look consistent with business activity? Are there unexpected variances requiring explanation? The Finance Director performs final review before distributing to leadership.

Close retrospectives after challenging months identify improvement opportunities. If we missed the five-day deadline, what caused the delay? How can we prevent similar issues next month? Continuous close process refinement maintains our fast-close capability as business complexity grows.

Invoice Processing Workflow​

AP invoice processing balances speed with proper controls. We aim to process invoices within three business days of receipt while ensuring accuracy and proper approval.

Invoice receipt happens via email, postal mail, or supplier portal. The AP Specialist logs all invoices upon receipt, creating visibility into what needs processing. Electronic invoice delivery speeds processing compared to paper invoices that need scanning.

Three-way matching verifies the invoice matches a purchase order and receiving confirmation. This control prevents paying for goods we didn't order or didn't receive. The AP Specialist investigates discrepancies—price differences, quantity variances, or missing receiving documentation—before proceeding.

Approval routing sends invoices to designated approvers based on expense category and amount. Small routine purchases may auto-approve. Larger amounts or unusual expenses route to appropriate managers. The AP Specialist tracks approvals and follows up on aging approval requests.

Coding validation ensures proper account assignment. The AP Specialist reviews that invoices are coded to correct expense accounts, departments, and projects. Proper coding is essential for accurate financial reporting and cost analysis.

Payment scheduling considers vendor terms and our cash flow. We take advantage of early payment discounts when they provide good returns. Standard terms invoices get scheduled for regular payment runs. Urgent supplier requests get expedited when business needs justify priority treatment.

Payment execution generates check runs or electronic payment files twice weekly. The AP Specialist prepares payment batches, the Finance Director reviews and approves, and payments are released. International wire transfers require additional lead time and coordination.

Documentation filing maintains organized records of invoices, purchase orders, receiving documents, approvals, and payment confirmations. Complete documentation supports audit requirements and enables resolving future disputes.

Exception handling addresses invoices that don't fit standard processing. Credit card invoices without POs require expense report backup. Utility bills need allocation across cost centers. The AP Specialist follows specialized procedures for these non-standard situations while maintaining proper controls.

Collections Management​

AR collections balance financial goals with client relationship preservation. We need to collect what's owed to maintain cash flow, but heavy-handed collection approaches can damage client relationships that sales works hard to build.

Payment term enforcement starts with clear invoicing. Invoices specify payment due dates, accepted payment methods, and late payment consequences. Clear communication prevents misunderstandings about expectations.

Proactive communication before payments are due improves collection rates. The AR Specialist sends payment reminders five days before due dates, ensuring clients have time to process payments without becoming overdue.

Aging monitoring provides daily visibility into overdue balances. The AR Specialist reviews aging reports to identify accounts requiring follow-up. Collection efforts escalate based on how overdue accounts become.

Email reminders go out when payments are 1-5 days past due. Often clients simply overlooked the invoice or had internal processing delays. Polite reminders usually resolve these situations quickly.

Phone calls escalate collection efforts for invoices 6-15 days overdue. The AR Specialist calls to inquire about payment status and understand any issues preventing payment. Sometimes clients have legitimate disputes requiring resolution before they'll pay.

Sales involvement happens for invoices over 15 days past due. The AR Specialist coordinates with the sales team member who manages that client relationship. Sales can often resolve collection issues through relationship channels that pure collections approach can't access.

Payment plan negotiations may be necessary for clients facing financial difficulties. Rather than losing the entire balance, sometimes accepting a payment plan preserves the relationship and recovers most of the amount owed. These arrangements require Finance Director approval.

Collections agency or legal action is a last resort for accounts severely overdue with no response to collection efforts. The Finance Director makes these decisions weighing the likelihood of recovery against the cost of aggressive collection and the definite end of the client relationship.

Budget Planning Cycle​

Annual budget planning begins in Q4 for the following year. The process balances bottom-up input from departments with top-down strategic priorities and financial targets.

Strategic planning context from leadership provides revenue targets, margin goals, and strategic initiative priorities. These high-level goals frame departmental budget proposals.

Departmental budget development involves each functional leader preparing revenue projections (for client-facing departments) and expense budgets for their areas. Templates provide consistent formatting and categories, enabling consolidated analysis.

Headcount planning specifies staffing needs including new roles, promotions, and compensation increases. People costs are our largest expense category, so accurate headcount budgets are critical for total expense forecasts.

Capital expenditure requests identify equipment, technology, and facility investments needed to support operations and growth. Each capital request includes business justification, cost estimate, and expected return or benefit.

Revenue forecasting combines sales pipeline analysis with historical patterns and market trends. The Finance Director works with sales leadership to build realistic revenue projections that are ambitious but achievable.

Consolidated budget assembly pulls departmental inputs into company-wide financial projections. The Finance Director reviews for completeness, consistency, and alignment with strategic goals.

Gap analysis compares projected results to targets. If consolidated budgets show margin below target, the Finance Director identifies adjustment opportunities—revenue enhancements, expense reductions, or timeline shifts.

Iteration and negotiation happen when initial budgets don't meet targets. The Finance Director works with department heads to find solutions that maintain operational effectiveness while hitting financial goals. This negotiation balances financial discipline with operational reality.

Board approval finalizes the budget. The Finance Director presents the proposed budget to the board, explaining key assumptions, risks, and strategic trade-offs. Board approval authorizes execution.

Monthly budget monitoring tracks actual performance against plan. Variance reports highlight significant differences requiring explanation or corrective action. Budget versus actual performance provides accountability for financial results.

Quarterly re-forecasting updates annual projections based on year-to-date actuals and revised assumptions for remaining periods. Business conditions change, so static budgets become less relevant as the year progresses. Re-forecasting provides current financial outlook.

Cost Analysis Process​

Project-level cost tracking enables accurate profitability assessment and informs future pricing decisions. We track costs by project from the time an order is confirmed through final delivery.

Cost estimation happens during the quoting process. Based on design specifications, we estimate material costs, labor hours, and overhead allocation. These estimates form the basis of quoted prices and target margins.

Actual cost tracking begins when production starts. Material purchases get tagged to specific projects. Labor time sheets record hours worked on each project. Overhead gets allocated based on direct labor hours or other relevant drivers.

Work-in-progress monitoring shows costs accumulating on active projects. The Cost Analyst provides weekly updates on major projects, alerting operations and management if costs are tracking significantly over or under estimates.

Variance analysis at project completion compares actual costs to estimates. Material variances might result from design changes, material waste, or price differences. Labor variances could reflect complexity misestimation, efficiency issues, or scope changes. Understanding variance causes improves future estimating accuracy.

Profitability reporting calculates gross margin by project—revenue minus direct costs. The Cost Analyst prepares project profitability reports that show which projects met margin targets and which fell short.

Trend analysis aggregates project data to reveal patterns. Are certain types of projects consistently more or less profitable than others? Are margins improving or declining over time? These insights inform strategic decisions about where to focus business development efforts.

Cost model updates incorporate learnings from variance analysis. When we identify systematic estimation errors, we adjust our cost models so future quotes reflect improved accuracy.

Portfolio profitability analysis examines margins by client, by costume category, and by other dimensions. This analysis reveals which segments of our business deliver strong returns and which create volume without proportional profit.

Financial Reporting​

Financial reporting transforms transaction data into information that supports decisions. Different audiences need different reports with varying detail levels and timeframes.

Internal monthly financial packages include income statement, balance sheet, and cash flow statement comparing actual results to budget and prior year. Narrative commentary explains significant variances and highlights financial risks or opportunities.

KPI dashboards provide operational metrics that don't appear in financial statements but matter for business management—gross margin percentage, days sales outstanding, inventory turnover, and function-specific metrics.

Project profitability reports show margin performance by active and completed projects, enabling project-level decision-making and resource allocation.

Board quarterly packages include financial statements, trend analysis, forward-looking forecasts, and strategic financial commentary. Board reports provide transparency on financial performance and inform governance decisions.

Annual financial statements undergo external audit and provide comprehensive financial disclosure. Audited financials are required for lenders, investors, and regulatory compliance.

Ad hoc analysis responds to specific management questions. "What would happen to margins if fabric costs increased 10 percent?" "How does profitability differ between theater clients and film clients?" The finance team provides analytical support for strategic questions.

Control and Compliance​

Financial controls prevent errors and fraud while ensuring regulatory compliance. Our control environment balances protection with operational efficiency.

Segregation of duties separates transaction authorization, execution, and recording. The person who approves invoices shouldn't also process payments. This separation makes fraud require collusion rather than unilateral action.

Approval workflows require appropriate authorization before commitments. Purchase orders need approver sign-off. Journal entries need review. Large payments need dual authorization. These controls ensure spending aligns with organizational authority levels.

Account reconciliation catches errors and anomalies. Monthly bank reconciliations verify our records match bank statements. Intercompany account reconciliations ensure transactions are recorded consistently. Reconciliation discrepancies trigger investigation and correction.

Access controls limit who can modify financial data. Accounting system permissions grant access based on role requirements. The AP Specialist can enter invoices but can't approve payments. The Senior Accountant can post journal entries but selected adjustments require Finance Director approval.

Audit trails document who did what when in our financial systems. Transaction histories enable investigating suspicious activities and demonstrating compliance with control procedures.

Internal audits periodically test control effectiveness. The Finance Director or external advisors sample transactions to verify proper authorization, accurate recording, and compliant processing.

Tax compliance processes ensure timely filing and payment of sales tax, income tax, payroll tax, and other governmental obligations. Missing tax deadlines creates penalties and potential legal issues we avoid through diligent compliance management.

Getting Started with Finance Processes​

New finance team members should focus on mastering the processes most relevant to their role. AP Specialists need deep familiarity with invoice processing. AR Specialists need collections management expertise. The Senior Accountant needs comprehensive knowledge of all processes since they coordinate month-end close.

Learn why processes exist, not just what steps to follow. Understanding the controls being achieved or the accounting principles being applied helps you handle situations that don't perfectly fit documented procedures.

Ask questions when you're unsure. Finance is less forgiving of errors than some other functions. It's better to ask for clarification than to make an incorrect assumption that requires later correction.

Shadow experienced team members before taking ownership of processes. Documentation captures mechanics but watching someone skilled reveals the judgment and efficiency techniques that make processes work smoothly.

Suggest improvements cautiously. Some finance processes must follow specific approaches due to accounting standards or regulatory requirements. But operational efficiency improvements that maintain proper controls are welcomed.