Spend management innovation yields equity value

With the tumult of 2023 coming to an end, finance leaders have found no shortage of factors that could potentially affect the year-end close, especially where it concerns accounts payable and receivable. CFOs and controllers need to take extra care and attention as they seek to close their books and look ahead to 2024. 

One of the big factors has been interest rates being brought to their highest level in decades. Amal Shehata, an accounting professor at NYU’s Stern School of Business, noted that high interest rates have made it more difficult to access credit, which many businesses had come to rely on. 

“What I think companies are probably most anxious about is their liquidity constraints,” she said. 

Such constraints, according to Eric Scaringe, a principal with New York-based advisory firm UHY who works with CFOs and controllers, is why he predicts financial professionals will be seeing more unpaid debts going into the new year. People are looking for any capital they can leverage in order to offset their costs. 

“I think CFOs will take a closer look at the types of customers and business sectors they work in to determine if they can collect on debts. There will likely be more scrutiny on getting that [paid] sooner rather than later,” he said. 

Similarly Jim Cox, CFO of Idaho-based Clearwater Analytics, has observed float becoming a more important factor. When interest was at near-zero for years, people were less likely to hang onto cash. As rates grew, however, doing so became more attractive because having cash on hand allows for more operational flexibility. 

“When the Fed funds rate is zero, the incremental value is marginal, but when it’s 5%, float becomes much more valuable,” he said. “So the reason you see people focus on shrinking float is because money is worth something now and costs something now.” 

Another factor, closely connected with interest rate risk, is inflation. Raykhan Bekimbetova, controller for Washington, D.C.-based cybersecurity and professional education company ISC2 noted inflation had more of an indirect, but still significant effect on his own processes as it required his department to work hard finding new cost efficiencies. This has included finding new ways to optimize backend processes, adding variations to products, and finding less expensive vendors. He noted that these steps have been necessary as they can only raise costs so high. 

“We are very cognizant of affordability issues of our products in smaller economies,”he said in an email, adding that his year-end close usually takes place in the beginning of January.

Facing these challenges, there are a few things financial leaders highlighted that can promote a smooth year-end close process: 

1. Review your receivables and payables

It’s important not to become complacent when it comes to money going in and out. Shehata stressed the importance of reviewing and assessing items so leaders can act sooner rather than later to unexpected factors.

“Thoroughly scrutinize the quality of your receivables so you can be proactive before the end of the year, and that goes back to if there’s risk of customers not being able to pay,” she said. “Stop shipping unless they pay in advance. … The same on the other side with your accounts payable. Make sure you are being proactive, reaching out to vendors and really leveraging those relationships.”

2.  Properly align talent, tech and processes

Cox noted that technology, talent and process must work together to have maximal impact. Instead of viewing each as individual silos to consider, leaders must make sure they’re all coordinating with each other. 

“It is hard to switch technology solutions between now and the year end, so really understand what you can rely on with your technology,” he said. Number two, make sure you have the best people in place... Third, make sure everyone understands the processes they’re doing.”

That talent, using the technology they need to conduct their processes, means “everyone singing off the same song sheet,” he said. “You’re giving yourself the best opportunity to have a successful year end.”

3. Look at what’s coming down the pipe

Just as important as examining the past is looking toward the future. Scaringe said that CFOs and controllers should keep one eye on next year as they go through the process of closing out this year. 

“Take a deep look at the horizon and see how many of these items currently or potentially will impact the business: the current geopolitical landscape, supply chain changes and inflation,” Scaringe said. 

4. Assess policies and processes now rather than later

Finance departments need to assess their processes and policies for effectiveness as soon as they can, because doing so will reduce the risk of errors, misstatements and potential audit issues, Bekimbetova said. They must be cognizant of changes in standards, regulations and business operations, perform balance sheet reconciliations as soon as possible, and assess their internal controls.

“Early preparation will set the stage for a successful start to the new fiscal year,” he said. 

5. Beware of fraud
 

Richard Corn, director of product management for BILL, noted that the sheer amount of fraud that AI enables will lead to companies having to increase their scrutiny of invoices, as it will be more difficult to determine their legitimacy. 

“With the rise of generative AI, AP fraud is getting more sophisticated,” Corn said in an email. “It used to be easy to read a text, email, or other communication and judge likelihood of fraud based on writing style or grammar. Now, fraudsters are using generative AI to disguise voices or sound like other people. Payment requests should always follow internal controls with verification by 2 methods continuing to be best practice.”

With more than 7 million online subscribers, QuickBooks is the go-to enterprise resource planning system for small business CFOs. Parent company Intuit is now aiming to serve larger businesses with more complex operating structures as employees at various levels require access to financial data.

This month, Intuit rolled out a series of product enhancements for QuickBooks, including expanded roles and permissions, advanced charting and reporting capabilities and a new platform for accountants called QuickBooks Ledger.

“There’s a lot of runway for us to continue to grow upmarket,” said Dave Talach, a senior vice president at QuickBooks, said in an interview at the company’s annual conference in Las Vegas on Tuesday. As companies grow and add more organizational layers, ERP systems need to adapt, he noted.

Access controls are important for larger firms with multiple individuals that make decisions based on accounting and other financial data. Though QuickBooks has traditionally served businesses with one to ten employees, it’s been angling for larger companies that have employees who may need varying information access rights, Talach said.

“We're building these global capabilities as a technology platform, and then the goal is to be able to package them for different segments or different audiences,” he said.

Supporting growing companies

The new upgrades address a challenge firms face as they add new organizational units. Benjamin Lehrer, founder and CEO of consulting firm First Water Finance and head of learning and development at the CFO Alliance, said managing multiple legal entities and divisions from an ERP system is key for growing companies.

For example, “if you have two subsidiaries and a parent company — each of whom have their own instance of QuickBooks — there isn’t the ability to consolidate [reporting] results across those instances,” he said. 

The new product improvements serve what Intuit considers “middle market,” companies with 10 to 100 employees, Talach said. Supporting even larger firms could be in QuickBooks’ future, but the middle tier employee size is typically when many firms begin to need support for more complex operating structures and processes.

“It's really when you get into that 10 to 100 [employee] mid market that those foundational things that we're building in the platform…access-base controls, workflows, reporting with better granularity, programmatic access, start to be more relevant to those larger customers,” Talach said.

The complexity of operations, however, doesn’t always correlate with the number of employees.

Middle-market companies “tend to be scaling up versus trying to make that next paycheck. They tend to be more focused on how they get their business processes in place,” including hiring technology and marketing leaders, said Ted Callahan, director of accountant partnership and strategy at Intuit. “Those attributes are very different from the smaller, self-employed business.”

The ability to support multiple organizational units is also important for companies that operate across various countries, said CJ Gustafson, CFO of auto parts marketplace PartsTech and author of CFO-focused newsletter Mostly metrics.

Expanding reach

While there are other accounting platforms for small- to medium-sized businesses — FreshBooks and Xero are two competitors —  QuickBooks is still the dominant player in the field, with its low price point and ease of use being two key selling points, said Lehrer.

As businesses grow, they may move to Oracle’s NetSuite, a platform aimed at larger firms with more complex organizational structures, according to Gustafson. Since the transition to NetSuite can be costly — businesses could pay more $100,000 per year — QuickBooks has an opportunity to retain more business customers as they grow, he added.

In contrast, QuickBooks plans can start as low as $30 per month for sole proprietors with pricing scaling up to “plus” and “advanced” plans that have additional features.

"It's when you get to an organizational size that you need to go into deeper and deeper dimensionality" when it comes to the level at which expenses need to be tagged, Gustafson said. That's "when you think about changing to NetSuite," he added.

For its part, QuickBooks aims to keep adding features to support growing business customers, and grow its platform of app integrations, Talach said. (QuickBooks does not charge third-party apps a fee to be part of its app store, according to Talach.) The platform has been enhancing HR, payroll and insurance capabilities, including a new partnership with Allstate Health Solutions to offer more health insurance solutions for client employees. 

As part of an effort to pull in new customers, the company also offers a fee-free bank account offering called QuickBooks Money, in partnership with Green Dot Bank, to support early-stage businesses.

“My theory is that Quickbooks Money is a business banking product designed for businesses that aren’t big enough to have a CFO,” said Alex Johnson, a fintech analyst and author of the Fintech Takes newsletter.  “At these companies, the CEO is the CFO … and the CRO and CTO and CMO … and she doesn’t have enough time or expertise to do most of those jobs all that well.”

Forays into generative AI

Looking to the future, Intuit is investing in advanced analytics capabilities across its product suite, including QuickBooks. Intuit in June announced that it's building a generative AI operating system called GenOS, a toolset that will allow it to pull from multiple large language models.

“GenOS is a foundational platform that gives us the ability to be able to use multiple large language models and build multiple plugins, so they can have multiple capabilities,” Talach said. “What that means is, if we want to use ChatGPT, if we want to use Anthropic, if we want to use our own custom algorithms, we can actually use them together.” 

GenOs will operate across Intuit’s product offerings, including TurboTax, Credit Karma, QuickBooks. and Mailchimp. The company is also testing a generative AI-powered assistant called Intuit Assist that will work across these product offerings. Intuit Assist is currently being beta tested among some employees and customers, with the goal to release it later this year, according to Talach. 

Intuit Assist will include four key functions, including “show me” (insights); “do it for me (automate tasks); “guide me” (customized action plans); and “help me” (customized support). 

The company said it’s thoroughly testing the product to ensure it can be a reliable resource for CFOs.

“What we heard from people is when it comes to their business finances, while they know large language models hallucinate, there is no room for errors in their financial data,” Talach said. “That’s what we're trying to get right, making sure that when they type in a prompt, it gives them a graph as an accurate representation of their data, and then we not only can represent that data, but we can analyze it and provide insights.”

With the series of improvements in progress, the goal will be to continue to grow the capabilities of QuickBooks as customers scale.

“We want to keep adding features that [customers] want because we want to grow with them,” said Talach. “Some of them will become larger than our needs. Some of them will become enterprises, and it’s going to depend on how fast we can move upmarket with them.”

 

Artificial intelligence and machine learning are rapidly transforming the accounting profession, which means finance leaders must move quickly to harness the power of today’s cutting-edge digital tools or risk putting their companies at a competitive disadvantage.

One of the best places to start is by integrating the technology to accelerate and improve the monthly close process so your accounting team can spend more time on other value-added projects. 

Efficiency optimization is a critical objective for organizations seeking to enhance productivity, reduce costs and gain a competitive edge in their respective industries. Most company leaders, including CFOs, know their businesses have significant optimization potential in their core processes. The challenge for most C-suite executives is charting a realistic, actionable path to improve those core processes and achieve a best-in-class execution. 

Pressure has been steadily building to improve employee productivity and operational efficiency to survive cost competition. That pressure is being intensified by the potential of new technologies, such as robotic process automation (RPA), process mining, ML and AI. 

Savvy accounting leaders see the writing on the wall and are searching for ways to incorporate such technologies into their teams’ daily tasks, including the monthly close. A recent survey by Gartner bears that out. It found that 45% of executives said the publicity surrounding ChatGPT “prompted them to increase AI investments.”  

At Horváth, our work with clients has shown that it is possible to automate more than 70% of the typical closing process. This can free up time for finance staff to focus on value-added activities such as decision support and commentary. Additionally, these new technologies can also reduce the overall size of teams focused on closing the books.

A key driver of efficiency optimization in accounting centers on the adoption of “first-level” digitization technologies, such as BI tools that feature AI and ML code. BI technology can enable companies to quickly and accurately access, tabulate, analyze and visualize accounting data, as well as provide business leaders with critical insights that can inform decision-making and drive process improvements. BI technology can also help organizations identify areas for further optimization of accounting functions and track the impact of their efforts over time. 

The technology can help link disparate IT systems and applications and help companies eliminate silos within accounting departments, such as accounts payable, accounts receivable, inventory management and payroll, to name a few. Improved data sharing and collaboration can lead to more streamlined processes and faster decision-making. This means that efficiency gains can be achieved across multiple subsidiaries, divisions and within the accounting department itself. 

Modernizing the close process

For years, companies have worked toward a close process where data is available on demand at any time (a “continuous” or “modern” accounting approach). This goal of achieving a “soft close” that can be completed on demand is highly dependent on a streamlined closing process with minimal time required to complete the financial close. 

This approach involves incorporating certain tasks into the daily accounting routine, such as intercompany reconciliations, currency conversions, accrual postings, and goods receipt/invoice receipt transactions. Adopting this method can reduce the closing time, and the entire process can be completed by the third day of each month. 

Common practices that contribute to lengthy closing times include a manual closing calendar that is inconsistently applied; decentralized documentation and archiving; limited governance due to a lack of transparency and real-time availability of information; and limited use of automation, such as relying only on batch jobs or basic robotics capability.

Achieving technology-driven results

Standardization, simplification and automation of tasks and processes enable organizations to achieve greater consistency and quality of services, streamline operations and improve the productivity of their accounting teams. By reducing complexity and eliminating redundancies, companies can save time and resources spent on the accounting close process and improve the bottom line. 

The implementation of state-of-the-art, cloud-based closing management software should feature one cloud-based SaaS solution that can replace multiple outdated tools, such as Excel and RPA. Other key features include low-maintenance effort with a "low code/no code" user interface; automated account reconciliation and regular financial health checks; and an accelerated and transparent audit trail. 

Over the past few decades, the changes in the closing process have been more of an evolution than a revolution. BI tools using AI and ML are now transforming the monthly close and making it more simple, highly automated and efficient.

The monthly close should not be a laborious effort, and companies taking advantage of the latest technology can now make it a value-added activity in addition to freeing up time to work on strategic initiatives. 

Finance tech startup Brex announced Tuesday that it’s rolling out a new artificial intelligence tool designed to boost its employee expense management suite.

The tool, known as Brex Assistant, can flag expenses that don’t fall under corporate policies, among other capabilities, according to Brex Chief Operating Officer Michael Tannenbaum.

“This really helps increase compliance with expense policies overall and also makes the job of CFOs and finance teams much easier,” he said in an interview.

Brex is one of many software vendors that are racing to bet on AI following the swift rise of ChatGPT, a generative AI tool created by Microsoft-backed OpenAI.

Eighty-nine percent of software companies are already using AI to differentiate their products — 15 percentage points higher than other sectors, according to a report published Monday by global management consultancy firm Bain & Company. The current generation of AI tools and models could help companies speed up 20% of worker tasks without a loss in quality, according to the research.

“The rapid uptake of AI over the past year and the many ways that it contributes to productivity and creativity have generated a broad wave of enthusiasm across the entire tech sector and beyond,” the report said.

Revenues of generative AI offerings across a broad range of categories are forecast to reach $3.7 billion this year and expand to $36 billion by 2028, according to S&P Global Market Intelligence.

Brex, which was founded in 2017, has ramped up its AI investments over the past year, particularly in customer-facing applications, the company said in a Tuesday press release announcing its latest product launch.

“Finance teams and managers can look forward to record-breaking employee compliance levels and increased productivity,” Henrique Dubugras, the company’s co-founder and co-CEO, said in the release.

Brex got its start by offering corporate credit cards to startups. Expense management software services were added over time.

With its recent AI enhancements, Brex has saved enterprise customers an average of 300 hours per month in employee expense compliance efforts, the company said. Also, on an annual basis, as much as $18 million in overall cost savings have been realized by using AI-powered controls to block customers’ out-of-policy spending, according to the release.

Brex’s new tool is designed to automatically populate expense materials in a more efficient fashion, organizing each expense into the relevant categories and providing finance teams with more accurate insights into employee spending, the company said in an email. Having higher compliance from employees results in “faster time to close the books and gather essential insights, and less time spent reviewing individual expense reports,” it said.

The shining promise of emerging technologies like the cloud and generative AI has organizations reaching deeper into their wallets: global IT spending is expected to increase by 2.4% this year, reaching $4.5 trillion, according to a January report by Gartner.

Yet businesses and their finance chiefs are also facing continued pricing pressures, making it critical for companies to ensure they are spending on tools they really need for the business — as well as eliminate redundant or outdated tools that could be beefing up costs. Many companies, however, lack line of sight into the solutions they are already using, which means the first step leaders need to take to optimize their IT spending “is to create that visibility,” said Christian Richter, chief customer officer for SaaS provider LeanIX.

“What are the applications that you have?” Richter said in an interview. “Who uses them? What are they used for? And what are the underlying technologies?”

Boosting IT, business communication

Many companies are spending on tools and technologies without first checking in to see if the business side even needs them, Richter said — shelling out funds to upgrade servers that don’t actually serve a clear or important purpose at the organization, for example.  

Companies today waste approximately a fifth of their overall IT spend, a survey released by LeanIX in March found. Fifty-six percent of those surveyed pointed to outdated technology or technical debt as the biggest contributors here, according to the survey. Crucially, a lack of communication between the IT and business teams is also complicating companies’ IT spending landscape.

Only 30% of those surveyed said communication between those two teams was “adequate,” the LeanIX survey found, while 26% said the level of communication was “low or far too low.” For that matter, when it comes to IT optimization decisions in particular, nearly half of those surveyed (48%) ranked the communication as “poor.”

The real problem when cutting back on spending waste is not the technical optimization piece, but rather “having that conversation between the business side, the CFO, and the IT side,” Richter said.

Richter has served as CCO for the Boston, Massachusetts-based company for six years, according to his LinkedIn profile. Before joining the SaaS provider, he served as head of strategic products for T-Mobile shareholder Deutsche Telekom.

“The IT teams … they clean their own house, or clean up what they can do, but they missed the opportunity to take the knowledge from or the perspective from a CFO and from the business teams to do the cleanup,” he said.

Creating a common plan

Even amid economic uncertainty, IT and digital transformation remain at the top of the list when it comes to areas where companies are expecting to hike spending in upcoming months, CFO Dive recently reported. That means finance leaders not only need to be communicating with other key leaders like the CIO, but asking them to “bring data to the conversation,” Richter said.

“IT complexity comes at a cost. If you reduce it, you spend less for it,” he said. “So go to the CIO, and let them show you how [they] plan to reduce those costs.”

While companies will never get to a point where they have 100% mitigated tech obsolescence, Richter said, using data to focus on the critical areas of the business or those that could be hurt the most by outdated tech can enable them to boost efficiency and cut down on costs for their organizations. However, this can only be done if one has mapped out their companies’ existing technologies and everyone is aware of what the company has, he said.

“I think that should really not be underestimated, how important it is to democratize information about the IT landscape,” Richter said.

It’s important to set out a strategy both for the technology that the company is currently using as well as the software or other tools it might accumulate over the next two to three years, he said, and for the CFO and CIO to create a “common plan” to mitigate those costs.

“I think the CFO is a really good moderator and from a budget perspective, has their requirements but can also show a way out,” he said.

These days, financial leaders are having trouble finding qualified accountants. However, the current accounting shortage is “not necessarily a talent shortage,” said Anees Pretorius, co-founder and CEO of Bean. The Cleveland, Ohio-based company is a SaaS-based marketplace and workflow solutions provider for accounting services.

Talented accountants with the skill sets, experience and the desire to do the work are still out there — the big shift is when it comes to their work, those individuals don’t “necessarily want to do it in the way that they've always been told that they have to do it,” he said in an interview.

Bringing creativity back to accounting

The turnover rates and the growing shortage of accountants has been a pervasive problem across the industry for quite some time, Pretorius — who himself “cut his teeth” at Big Four accounting firms — said. Pretorius began his career at Deloitte as an auditor, before logging a two-year stint at Ernst & Young, first as a management consultant and then as an audit and assurance manager, according to his LinkedIn profile.

However, the shortage has been exacerbated in recent times by a persistent lag in technology in the space and the lure of shinier jobs in newer industries for recent college graduates — not to mention the burden of increased responsibilities for the accountants who remain, Pretorius said.

“The sad reality is these folks get to a point where they think only two options exist,” he said of today’s accountants — they either stay and resign themselves to an unchanging space, or many bow out of the industry entirely.

Accountants themselves are vocal about the need for change in the industry — a survey by FloQast found 53% of accountants admitted they weren’t sure if they would be with their present employer a year later, and more than two-thirds of that number said they may not be in an accounting role at all by that same period.

The accounting industry is grappling with both a need to entice new blood as well as prevent burnout among practicing accountants.

Solving both of those challenges will require a new approach to the accounting space that grants more freedom and flexibility both to accountants and to companies, many of which many not be able to afford Big Four services but don’t want to compromise on quality, Pretorius said. Bean, which describes itself as a “dating app…but for the business world,” uses technology to match projects with the right qualified accountants.

“What we're looking to do is re-imagine the way finance leaders think about executing on their project-based work,” Pretorius said. “And we do that by layering technology and then also providing tools to help accountants do their work quicker, better and make it feel more delightful.”

Bringing accounting up to tech speed

Keeping pace with technology needs is also critical within the accounting space, especially when it comes to enticing newer graduates to the profession, Pretorius said.

“In a world where technology is the foundation that literally drives the world, it would be foolish to think that we shouldn't be building technology that embraces a new potential workforce in the accounting industry,” Pretorius said.

The Big Four are among those investing in technology to help bring accounting to the cutting-edge. KPMG, for example, announced a partnership last month with Canadian company Mindbridge, which will bring machine learning and rules-based analytics technology into its digital audit platform, KPMG Clara.

Meanwhile, Pretorius’ previous employer Deloitte announced its “Project 120” initiative last December, funneling $1.4 billion into the project which will help “to develop critical tech and leadership skills” in its employee base, the company said.

However, this often still leaves accountants outside of the Big Four — or those who might want to depart for other opportunities — left without the modern infrastructure they need to do their jobs in a tech-forward, global world, a gap Pretorius is looking to fill with Bean’s platform.

“How do we build the infrastructure for the folks who want to go out and maybe be their own bosses or build their own businesses?” he said. “That’s the tech platform that we're looking to build.”