How Retail SMEs Can Transform Their Finance Department After a Pandemic

Financial adversity is at the forefront of many retail SME leaders’ agenda. With 22 per cent of retail SMEs believing that it will take them up to two years to recover from the financial constraints of the pandemic, it’s never been more important to review your finance departments. It is vital that they maintain their effectiveness to grow your business.

Finance departments have a role to play within every department of your business. They can forecast financial growth or difficulties and assist managers in navigating the most effective business strategies. This being said, in one survey, 40 per cent of all SMEs still had no planning, management reporting, or financial staff. Here, we look at the purpose of finance departments in retail SMEs and how they can be transformed to help your business succeed.

Phasing transitions

Financial transformations must be approached with care. Identify which aspects of your department need to be updated and which are the most beneficial to your business. Aspects to consider reviewing include your finance department's liquidity and its reporting processes. These can quickly demonstrate their effectiveness to your business while contributing towards financial refashioning.

The traditional finance department is reactive, producing results for past business success and improvement. A transformed finance department should be proactive, identifying how to move the business forward for a new value.

For example, reviewing liquidity ratios in the retail sector is essential to understanding cashflow. Finance departments can continually review this to reveal trends over certain periods. This can show how quickly the business can recover from financial adversity.

Recovering from the pandemic, it’s important to cover your main bases before moving towards financial growth. Insurance is key when evaluating how to financially secure your business. You must review your current situation before initiating a financial transformation.

Companies may also want to take guidance from those parties that understand your business best such as your statutory auditor. A statutory audit can deliver you with an independent opinion to shareholders on the reality and fairness of your business’ financial statements.

The centre of strategic decisions

The finance department should be integral to strategic decisions made by business management. This is particularly true in terms of which projects or markets to pursue.

The efficiency of financially-driven business decisions is also beneficial. Research indicates that companies that use effective strategy methods obtain a 20 per cent increase in revenue. Ultimately, finance departments allow business leaders to make informed decisions. Guided by a standard set of practices, finance departments present consistency in an often-fluctuating sector. This allowes for financial and departmental comparisons, with quarterly reviews against competitors.

To this extent, while finance can provide insight into the effectiveness of your business, it must be utilised to continually improve results. Finance departments should review income and outcome to prepare for evolving business strategies and present a way to navigate through financial difficulties. Finance must work alongside every department to calculate how they can work to maximise profitability.

This is essential for retail SMEs. For example, in fashion retail, trends and expectations can often dictate what clothing should be produced and sold. However, finance departments can indicate which products perform well year-on-year and hold consistent popularity with customers. Neither takes away from the other, as both predictions are essential for this industry. Instead, they work in unison to achieve popularity and assured profitability.

Evaluate and speculate

Finance departments can focus on evaluating the successes of business to create a trajectory for business performance in the future. But retail finance departments should look further. While reflecting on the performance of the business, financiers in retail businesses should also make predictions on future costs for the business. These can include, rent, material cost, and the potential increase of tax. While finance is largely based in mathematics, it’s not always an exact science.

These predictions are becoming increasingly important for the retail sector. With trade negotiations subject to continual Brexit developments, the finance department will be a lifeline continuing your business into the future.

A series of CVAs has seen retailers ask landlords to reduce rent on outlets to dispel lost confidence in the high street. Finance departments must prepare for adverse financial situations, even on the road to recovery.

Forecasting with data analysis may show a difficult road ahead. But being prepared allows businesses to prosper in the future. Speculation allows businesses to understand every potential scenario and how they can be overcome efficiently.

Finance is an essential part of retail SMEs, particularly in an adverse territory where businesses are unsure if survival is guaranteed. While consumer confidence is slowly returning to the high street after a tumultuous year, internal business confidence is key to your success. Internal confidence begins with your finances and strategizing how they can be prepared for future adversity or prosperity.