Is Your Finance Department a Cost or Profit Center?
Allan Tepper, CFO Consulting Partner LLC
To begin, I will define cost and profit centers, using my definition developed after leading accounting and finance functions for over twenty-five years.
Cost centers need to be efficient and be doing critically important tasks. From a company perspective, cost centers need to keep their costs at the lowest possible level while functioning at a highly effective level.
Profit centers have all the same attributes as cost centers, but produce revenue, thereby adding profits to a company’s bottom line.
Well-run finance departments have profit center elements. Although finance departments, as a unit, are not true profit centers because they do not directly produce revenue, they have many positive bottom-line attributes. Finance functions aid other cost and profit centers to be more efficient and effective and incentivize them to work cross-functionally as a team.
There is an often used phrase called a “strategic CFO.” That person would primarily focus on making the whole company stronger. I believe it follows that a goal for all companies should be to make the finance department function more like a profit center than a cost counter.
Examples of how finance departments become strategic include:
– Perfect the closing process so the books are closed quickly and accurately after month end, and time is available for analysis.
– Make the budgeting and reporting process part of a company’s DNA.
– Work with the various company units that feed information to the accounting department in order to make the information accurate and at the proper level of detail.
– Provide analyses that allow for action-oriented decisions. An example would be an analysis of the profitability of various business units. Another could be customer profitability analysis.
– Have the capability – systems and people – to meet the normal demands of all stakeholders on a timely and accurate basis.
– Spearhead merger and acquisition projects.
In summary, well run accounting and finance functions have significant attributes that help improve the bottom line of the whole company. A discussion with a C-level financial management consulting firm should provide insights on how to transform an accounting function from a cost to a “profit center.”