Things I Notice When a Finance Function Isn’t Working

I can usually tell pretty quickly when a finance function isn’t working.

Not because the forecast is wrong.

Forecasts are wrong all the time. If being wrong disqualified a finance team, we’d have to shut down the profession.

It’s usually smaller things.

Someone says, “Let me check with Mike.”

Then someone else says it.

Then I hear it again.

By the third “let me check with Mike,” I have several questions about Mike and at least one about what happens if Mike goes on vacation.

That’s the kind of thing I notice.

A finance function can produce reports every month, close the books, build a budget, update a forecast and still be much less functional than it looks.

The output isn’t always where the problem shows up first.

The behavior usually gives it away.

Nobody Quite Trusts the Numbers

This one is hard to miss.

A number goes on the screen and someone immediately starts explaining why it might not be right.

“That’s from the old report.”

“I think Accounting has a different number.”

“Sales tracks that separately.”

“We need to adjust for something.”

My personal favorite:

“That’s basically right.”

Basically right is an exciting phrase when you’re discussing millions of dollars.

Sometimes the differences are perfectly explainable. Different definitions, timing, source systems or legitimate accounting adjustments happen.

The problem is when everyone has become accustomed to them.

Nobody is particularly alarmed that three reports contain three versions of revenue because this has apparently been happening since the Eisenhower administration.

Eventually people stop asking which number is right.

They just learn which spreadsheet to use in which meeting.

That’s not a reporting problem anymore.

It’s an operating system the company accidentally invented.

Finance Is Always Busy, but Nobody Can Explain With What

I’ve walked into finance teams where everyone is clearly working very hard.

Calendars are full.

Excel is open.

There are files everywhere.

Someone is refreshing something.

Someone else is copying something from one place into another.

There is always a meeting starting in seven minutes.

And yet nobody has time to actually think.

This makes me nervous.

A finance function can become incredibly efficient at consuming its own time.

Reports get created because they’ve always been created.

Files get reconciled because two systems don’t agree.

Meetings exist because another meeting once decided they should.

People spend hours preparing information nobody uses because removing a report somehow requires more organizational courage than producing it forever.

Whenever I look at a finance function, I want to know where the time actually goes.

Not where the job descriptions say it goes.

Where Tuesday went.

Those are often two very different answers.

The Forecast Is a Finance Event

This is a big one for me.

Finance sends templates.

The business fills them out.

Finance consolidates everything.

A forecast appears.

Technically, forecasting has occurred.

But I want to see what happens before those numbers arrive.

Who challenges Sales?

Who asks Operations what’s changed?

Who knows that the hiring plan has quietly become fiction?

Who hears the bad news before the spreadsheet does?

A good forecasting process isn’t Finance collecting numbers from the business.

It’s Finance learning what’s happening in the business.

There’s a difference.

You can usually see it in the forecast meeting.

If everyone is discussing cells, I’m interested.

If they’re discussing customers, hiring, pricing, capacity and what changed since last month, I’m much happier.

Although “happier” may be overstating what happens to me in forecast meetings.

Let’s say less suspicious.

One Person Knows How Everything Works

Back to Mike.

Every finance team seems to have the possibility of a Mike.

Sometimes Mike is actually named Mike, which is convenient.

Mike knows why the revenue report needs that adjustment.

Mike knows which tab can’t be refreshed until the other file is closed.

Mike knows that Customer X gets treated differently.

Mike knows why February never ties.

Mike knows the password.

Everyone loves Mike.

I am immediately worried about Mike.

Not because Mike is doing anything wrong. Usually Mike is excellent.

The problem is that the company has quietly turned a human being into infrastructure.

You don’t discover how much infrastructure is living inside somebody’s head until that person leaves, gets promoted or takes a two-week vacation somewhere with poor Wi-Fi.

Then Finance begins an archaeological dig through their folders.

I have participated in these digs.

There are rarely snacks.

Finance Can Tell Me What Happened but Not What It Means

Revenue missed by 6%.

Gross margin fell 140 basis points.

Operating expenses were $300,000 above plan.

Thank you.

Now what?

This is where I start separating reporting from FP&A.

I don’t just want the variance.

I want to know what changed in the business.

Was the revenue miss concentrated in one customer segment?

Is margin pressure temporary or structural?

Is the expense overage a problem, an investment or timing?

Does any of this change what we’re going to do?

A finance function can become so focused on producing information that nobody notices it isn’t helping people make decisions.

The deck gets better.

The decisions don’t.

That’s an expensive way to make PowerPoint.

Bad News Travels Slowly

This one bothers me more than almost anything else.

You ask about something in the forecast and there is a pause.

Then somebody says:

“Yeah, we’ve been hearing that.”

How long?

“Couple weeks.”

Wonderful.

Finance cannot forecast information the organization is reluctant to say out loud.

If Sales knows a deal is slipping, Operations knows a launch is late or HR knows those hires aren’t happening, I want that information traveling quickly.

Not because Finance needs to police everybody.

Because a forecast is only as current as the truth people are willing to put into it.

The healthiest finance functions I’ve seen aren’t necessarily the ones with the fanciest systems.

They’re often the ones where bad news gets to Finance early.

That tells me something about the relationship Finance has built with the rest of the company.

Everything Is Urgent

There is another symptom I notice.

Every request is urgent.

Every analysis is needed today.

Every executive question creates a small fire drill.

Someone wants a different cut of the data and suddenly three people have lost their afternoon.

I’ve worked in Finance long enough to know that some fire drills are real.

CFOs do occasionally need an answer in twenty minutes.

Boards are not famous for asking questions three weeks in advance.

But if everything is a fire drill, eventually I stop blaming the fires.

I start looking at the plumbing.

Usually there is something underneath it: fragmented data, unclear ownership, manual processes, reporting that isn’t designed around the questions leadership actually asks.

The emergency isn’t always the problem.

Sometimes the emergency is just how you discover the problem.

The Team Has Stopped Asking Why

This may be the quietest signal.

A process doesn’t make sense.

Nobody questions it.

A report takes six hours.

Nobody asks whether anyone reads it.

A forecast assumption hasn’t changed in three years.

Nobody remembers where it came from.

There’s a spreadsheet with 37 tabs and one of them is named “FINAL_v7_USETHIS.”

Everyone accepts this as part of the natural world.

That’s when I get curious.

Finance functions accumulate habits.

Some were good decisions once.

Some were temporary workarounds that survived long enough to become policy.

Some exist because a person who left four years ago wanted them.

And some appear to have simply materialized.

One of the most useful questions I’ve learned to ask is embarrassingly simple:

Why do we do this?

The answer tells me a lot.

“This is required for the board” is an answer.

“This feeds the cash forecast” is an answer.

“We’ve always done it” is an invitation.

I Don’t Start With the Org Chart

When I’m trying to understand a finance function, I’m not looking for one dramatic failure.

Usually there isn’t one.

I’m looking for friction.

Where does information get stuck?

Where do people recreate work?

Where are decisions waiting on Finance?

Where is Finance waiting on everybody else?

What requires a specific person?

What breaks every month?

What does everyone complain about but nobody has fixed?

And maybe most importantly:

Where has the team gotten so used to the problem that they no longer see it as a problem?

That’s often where the interesting work starts.

Because a finance function rarely wakes up one morning and stops working.

It adapts.

People create workarounds.

Then workarounds for the workarounds.

Someone builds a spreadsheet.

Mike figures out how to make it all tie.

And eventually the company has a finance function that technically works.

Right up until Mike books a vacation.

And then I get a phone call.

The calendar tells me more than the org chart

If I want to understand a finance function, I like looking at how the month actually unfolds.

When does close finish? When does reporting go out? When does the forecast start? When do business partners hear from Finance? Which days are repeatedly chaotic?

An org chart tells me who reports to whom.

The calendar tells me what the organization has become dependent on.

If the Controller cannot take vacation during the first eight business days, I notice. If FP&A spends half the month producing reporting and the other half preparing to produce reporting, I notice that too.

A process can be technically documented and still be operationally fragile.

I listen for different versions of the same number

Nothing gets my attention quite like hearing, “Which revenue number?”

Sales has one. Accounting has another. FP&A has a third with a note explaining why it is more useful.

Sometimes there are legitimate reasons for different definitions.

Bookings are not revenue. GAAP revenue is not always the management view. Pipeline is obviously something else.

The problem is when nobody can explain the bridge.

A functioning finance organization can tolerate multiple measures.

It cannot tolerate multiple realities.

Heroics are usually a process smell

I appreciate people who save the day.

I get nervous when the same person saves the same day every month.

If close works because someone manually fixes the upload at 11 p.m., that is not resilience.

If the board pack works because one analyst knows the fourteen hidden steps, that is not expertise I want to preserve in its current form.

Heroics can hide broken processes because the output still arrives.

Management sees the deck.

It does not see the person underneath it holding two systems together with VLOOKUP and spite.

Finance should know which questions are hard

Every company has questions that are genuinely difficult.

Customer profitability may require allocations. Revenue may have complicated recognition. Capacity may be difficult to model.

Fine.

What bothers me is when Finance is surprised that a recurring management question is hard every single time.

If the CEO asks the same question monthly and answering it still requires three days of reconstruction, the difficulty has become part of the process.

At some point we should decide whether to build the capability or explicitly accept that we will not have it.

Permanent surprise is an expensive operating model.

I watch what happens after a forecast miss

This tells me a lot about the culture.

Does the meeting become a search for who submitted the wrong number?

Or does the team ask what changed, what was knowable, and what the new information means?

Accountability matters.

But if people learn that bad news creates punishment, bad news develops a remarkable ability to travel slowly.

A healthy finance function needs information before it becomes comfortable.

That requires business partners to believe Finance wants the truth more than it wants a clean forecast.

I notice when reporting has no obvious customer

Some reports exist because somebody once asked for them.

The person may have left in 2022.

The report remains.

Every month Finance updates it, formats it and distributes it to a list of people who have developed excellent email filters.

I like asking who uses recurring work and for what decision.

Not because everything needs a dramatic ROI calculation.

Because recurring work has a cost.

If nobody can name the customer, I get curious.

I notice when Finance cannot explain the business without the spreadsheet

This is a bigger warning sign than it looks.

A good model is valuable.

But someone in Finance should be able to explain why revenue changed, what is happening to margin, where cash is going and what management is worried about without first finding the correct tab.

The spreadsheet should support understanding.

It should not be the only place understanding exists.

If the model is sophisticated and the explanation is “that is what the file says,” the function has become too close to production and too far from the business.

I notice whether the team improves anything

Busy finance teams can go years without improving their own processes.

There is always another close, another forecast, another board meeting.

The work consumes the capacity required to make the work better.

That is how five-hour tasks become traditions.

I like seeing some protected capacity for automation, documentation, model improvement and removing reports nobody uses.

A function that only survives the current month will look very similar next year.

Usually with more spreadsheets.

The strongest signal is often trust

When Finance is working, people bring problems early.

Sales mentions the deal that may slip before the forecast meeting. Operations tells Finance the project is behind. Department leaders ask for help thinking through a decision instead of only defending a variance.

When Finance is not working, information arrives late and polished.

Everyone has learned what the meeting rewards.

I can fix models and calendars.

Trust takes longer.

That is why I pay attention to these small behaviors. They usually tell me whether Finance is merely producing numbers or has become part of how the company thinks.