One Basic Principle for Better Finance Partnering

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Being a successful finance partner is challenging. Finance partners are meant to help drive business performance and improve strategic decision making. But the role is a lot more than performing analysis and sending spreadsheets along to your internal clients.

Let’s first start with the foundation. Of course, you’re going to have to master the finance and accounting core competencies. But unlike corporate accounting or audit, finance partnering is not typically taught in the curriculums of finance or accounting programs. And that’s because finance partnering is as much about personality and mindset than it is technical competence.

So here is the one basic principle to follow to improve your mindset and to be a better finance partner:

Instead of saying “no,” ask “how?” — “How can we make this work?”

1. Budgeting

Working with Jane, you’ve built and maintained a financial model that tells you how much variable cost you should forecast for your volume of Widget revenues.

You’ve also gone through and tracked a list of itemized vendors that are fixed-cost in nature and will contribute to your cost of sales and operating expenses. The plan has been approved by the firm’s Board of Directors, cost and expense targets are set, and there’s not a lot of “hedge” in the plan to absorb unforeseen costs — that is if your division is to make the plan.

It’s now three months into the year and Widget Division is humming along. Your monthly forecasts are tracking well to plan. It’s Monday morning and you receive a note from Jane — she’s identified a software subscription from a new vendor she believes can bolster customer satisfaction. It’ll cost $50,000 a month. All else equal, let’s assume the addition of this software subscription would put you 5% over your monthly target — by no means immaterial and not something that would wash out in the noise.

Balking at the price tag, your first instinct may be to say “No, we don’t have the budget for something that’s not absolutely necessary. We won’t make our profit numbers with this.”

Let’s talk about more constructive, alternative responses. What questions can we ask to help work this into the forecast? Here are some possibilities:

  1. Does the subscription make redundant any of the existing overhead spend? Perhaps the new subscription has out-of-the-box features that can replace something an existing subscription does?
  2. Does the subscription make any of our processes more efficient? Can we predict a relationship between increased customer satisfaction and a reduction in support call volumes, thereby reducing support costs by more than the cost of the new subscription?
  3. Can we estimate an increase to revenues, margins, or measures like lifetime value that are attributable to increased customer satisfaction? Can we show that the net present value is greater than zero?

The key here is that we are trying to use our financial wizardry to work this into the forecast, in pursuit of better business performance. Through question 1, we can potentially offset some or all of the incremental cost of the subscription. And that allows us to keep the net impact to profit close to zero, while gaining a chance at making a better product. In questions 2 and 3, we can potentially put a story together on why, despite in the short term spending more on the cost or expense line, this will be a net benefit to the firm in the long run.

Now let’s be clear, I’m not suggesting that you allow the business to overspend for negligible improvement. But when there are material opportunities to improve the business, as finance partners we need to be ready to help make it financially happen — Use your industry knowledge and professional judgment.

2. Commercial Negotiations

The concept and how the principle applies is much the same. Jane regularly meets with prospective customers in the market looking for the best deal on widgets. Now the customer base is diverse — it’s made up of different tiers of customers with varying personalities and spending power. Each customer sees value differently and the best deal means something unique to each of them. Let’s meet a customer and catch up with Jane on how the meeting went:

Mark is the CIO at Cat Tender Modules (CTM), a mid sized firm that is expanding fast and looking for a vendor that can keep pace with its growth. Mark is on a mission to deploy widgets throughout his company this year. In their meeting, Mark explained how he’s looking for an end to end solution.

When it comes to widgets, they have to be installed by technicians before becoming useful to the customer. Over a widget’s useful life, regular maintenance and support is also required. Additionally, customers typically enlist additional software related services to get the most out of the widget’s capabilities for their business.

Jane explains that Mark was presented with a proposal covering all his needs — the widgets, services, software, and pricing related to each component. However, Mark winced at the proposal. He goes on to describe how he was burned by the last major project he worked on. “I received a beating last year. Every time we had a minor issue with our implementation, I had to go back to the CFO and ask for more money for our vendor to develop a solution for us. My budget was already extremely tight and we ended up only barely making our numbers. Frankly, moving forward I need a solution where I’m not nickel and dimed for minor things when the contract is worth millions.”

The surface reaction to Mark’s comments may go like this — “huh, another customer that doesn’t want to pay for value.”

As finance partners, we need to be empathetic with our customer and look for the mutually beneficial commercial solution. How can we make this work? The true problem Mark is facing is not price, it’s uncertainty. Mark burned a portion of his internal political capital every time he had to go ask for more money. He needs a proposal where, to a reasonable extent, his costs will be known and can be budgeted with accuracy. How can we accomplish this?

Working with Jane and other internal resources, we can put together an end to end widget package that has one price — a single customer facing price tag for a bundle of widgets and services. We can position widget related services as complimentary to Mark and CTM, up to a mutually predetermined level of effort. Through the complimentary services, Mark won’t be nickel and dimed for minor work.

Next, to make this deal make sense for the firm — we need to do our internal homework. We need to work out a “deal P&L” and allocate the transaction price to all the components of the deal based on standard selling prices (not to mention all the other things we need to think about as principled in IFRS 15 or ASC 606). What do our costs against each component look like? What overall price do we need to hit our profitability targets? If not initially profitable, can we factor in the profitability of continued opportunities with Mark down the road?

Let’s assume we were able to make the numbers work and have successfully created a widget package that Mark can accept. He’s not paying us less for our goods and services. He’s actually paying us a higher amount with more certainty (we’ve bundled and essentially upsold services to CTM, whereas before Mark could have declined). Not only does this benefit the accuracy of Mark’s budget, this increases the certainty of our own revenue forecast.

If we find that we are nearing the end of the contract term with a services balance remaining, our firm can be proactive and suggest value added work to “use up” the customer’s credits. This will increase Mark’s satisfaction with us, positioning the firm as a strong, sticky partner.


Canadian Management CPA. On a mission to synergize finance with programming and data science.