Change is the law of the universe, and finance is no exception to the rule. Finance has been intertwined with our lives since the inception of human societies, and as the days go by, it only grows more tightly bound to human existence. And just as we evolved as humans, so has finance evolved and changed with us. Where we first started with bartering goods and rudimentary coinage, now we deal in numbers on a screen.
This article briefly explores the evolution of the finance function over the years, noting major developments in the field as humanity progressed up until the 21st century. Beyond that, the purpose of this article is to illustrate just how much finance has evolved already, how much it is evolving today with every passing hour, and how can a business establish a finance function that can keep up with the ever-progressing nature of finance and the day-to-day tumultuous developments of the business landscape.
The Early Days of Finance
Finance has existed for thousands of years, with early financial systems being developed in ancient civilizations such as Egypt, Greece, and Rome. These early systems were focused on trading goods and services and were based on the barter system. As societies evolved and became more complex, currencies were introduced, which allowed for a more standardized means of exchange. Banking also emerged as a means of storing and transferring money, with the first banks established in the Middle Ages.
The Industrial Revolution
The Industrial Revolution marked a significant turning point in the evolution of finance. The development of factories and mass production led to an increase in commerce, which in turn led to the need for more advanced financial systems. During this time, the first stock markets were established, and companies began issuing shares of stock to raise capital.
As the 20th century began, finance continued to evolve, with the development of new financial instruments such as bonds, futures, and options. The global economy grew, and financial markets became increasingly interconnected. The rise of computer technology in the latter half of the century brought about further changes, with the introduction of electronic trading and online banking.
The 21st Century and Beyond
The 21st century has seen a rapid acceleration in the pace of technological change, which has had a significant impact on finance. The rise of big data and artificial intelligence has transformed the way financial institutions operate, allowing them to analyze large amounts of data and make better-informed decisions.
Blockchain technology and cryptocurrencies have also emerged, disrupting traditional financial systems and creating new opportunities for innovation. In addition, the development of mobile technology has made it easier than ever for consumers to access financial services from anywhere at any time.
Building a Finance Function that Keeps Pace with Business Needs
Businesses must be agile in finance and development of the finance function. The global economy has been highly volatile ever since the start of the decade and only continues to grow more volatile as time progresses. In such strenuous times, start-ups and small businesses must begin laying down the foundation of their business finance function as soon as possible, before things get out of hand and it is too late. To that end, here are some quick and easy tips to keep in mind when building a finance function that must keep evolving and flexibly grow with the business needs:
Embrace Technology in Finance
Experts at Expertise Accelerated have consistently stressed the growing importance of technology in finance and accounting today, with publications like “The Future of Accounting: Demand and Evolving Technology 2022” emphasizing all the major technological advancements available at our fingertips today.
The plain fact of the matter is that human beings are not perfect, we cannot change at a moment’s notice, and business processes need time to adapt to new developments. Unfortunately, the business landscape does not care about this and continues to rock the business boat without regard. This is where technology can be your compass that guides you through the tumultuous maelstrom of recession and inflation that the business landscape is currently under.
Technology is by no means a replacement for the human element, mind you, but what it can do is make things far easier for humans to adapt. By making use of technological aids and tools such as financial modeling software, automation, and data analytics, businesses can forecast, and to a degree even predict the business’ future financial needs, and pre-emptively implement solutions to deal with any incoming changes.
Not only that, if the Covid-19 pandemic taught us anything, it’s that no matter what happens the show must go on. Businesses cannot just close up shop and in times of crises such as the pandemic, they must keep working and generating cash flow to stay afloat. Just looking at the Federal Reserves report on the matter, over 700,000 businesses were forced to shut down permanently because they had no infrastructure built to operate in quarantine. Technology completely solves this issue, and the success of the WFH model in the past three years proves that businesses before the pandemic were not leveraging technology to its maximum potential.
By making use of cloud accounting, as well as outsourced accounting services and communications technology such as Zoom and Microsoft Teams, many of the businesses which had to, unfortunately, close their doors during the pandemic may have been able to avert disaster. Hindsight is 20/20, and while the failure of so many businesses is deeply regrettable, it is also a learning opportunity for any entrepreneur today. The finance function must have sound technological infrastructure and be able to operate regardless of circumstances, in the event that any such crisis ever happens again.
“Expect the best but be prepared for the worst” is an apt way to describe the attitude businesses need to have when building the finance function.
The finance function does not exist or operate in a vacuum. No, today the finance function is deeply connected with almost every process in the business, and entrepreneurs must understand this connection and encourage and ensure collaboration between the business’ various functions for optimal performance of the finance function. this will help finance understand the broader context of business decisions and ensure that financial considerations are incorporated into strategic planning.
Just think about it for a second. If the finance department is not consistently collaborating with the sales department and the supply chain management department, how can a good business strategy be possibly derived without having all the data present?
ERP systems are an excellent technological solution to the collaboration problem, as they create a centralized interface that allows for real-time interaction of organizational resources and sharing of information in a coordinated and value-adding fashion.
Stay Up to Date with Regulations
This is the most relevant area when it comes to being agile in finance. Regulations and laws are always subject to change, and demand that businesses keep themselves apprised of any and all developments, or risk exorbitant fines and irreparable damage to the brand.
The finance function must therefore always be aware of what is happening in the news. Regularly checking in on sources such as the Financial Times or local finance news sources is an absolute necessity. There may be a law enacted that actually benefits your business, or perhaps some regulation enforced on some business practices that you are implementing. Soaking in all of the information and keeping your finger on the pulse of the financial sphere is essential for a finance function intending to keep pace with the business needs.
Foster a Learning Culture
A “Learning Culture” is in high demand today. A survey by PwC reports that 80% of CEOs consider the dearth of new skills in the workplace as their biggest business hurdle.
The finance function is no different and with the constantly evolving business landscape, finance professionals must not get complacent with the status quo. All of the prior mentioned areas of focus for building a strong finance function depend upon the team’s willingness to keep pace with the business. The finance technology, strategic workflows & organizational hierarchy, and regulatory compliance; all of these things are moot if the financial team is not open to learning and changing with the times.
Entrepreneurs must ensure that their financial team keeps learning and acquiring new skills, for that is the only way for the business to keep pace with the competition. To that end, it is vital to invest in training and development programs to help the financial team consistently grow and improve alongside the technology and strategy.
Finance has come a long way since its early days, and it will continue to evolve as businesses adapt to new technologies and market conditions. Building a finance function that can keep pace with these changes requires a commitment to embracing new technologies, collaborating with other departments, staying up to date with regulations, and fostering a culture of continuous learning. By doing so, organizations can ensure that their finance function remains integral to their business strategy, supporting growth and driving success.