Duty Free & Retail Business
The Client’s Challenges
An established duty free and retail business operating in the Middle East required assistance to improve its budgeting, financial reporting and cash flow forecasting systems. While the client has a finance department, senior management were frustrated by what they considered to be inadequate financial reporting. Lacking a finance background, they were unable to challenge the head of finance by specifying what was required to resolve their concerns.
Identifying the Problem
The problem was readily identified by reviewing monthly management reports. Over the years, an array of reports had been developed for different purposes, with content largely dictated by the finance department rather than through consultation with users. A multitude of poorly defined reports, many with overlapping content, served to confuse rather than inform. Reports tended to be long in detail, much of it of little value, and short in key financial data suitable for decision making purposes. The presentation of reports was poor and cash flow forecasts were of questionable value.
Addressing the Problem
One conclusion arising from the review of management reports was that budget formulation was very poor. With so little analysis, it was not possible to satisfactorily explain why results deviated from budget. Accordingly, the first step was to design and implement a new budgeting methodology for 2020, a methodology based on engaging with department heads rather than one dictated by the finance department.
The next stage was to design and implement a new financial reporting system, incorporating an informed performance commentary.
Commencing January 2020, the business has a clearly defined budget incorporating each element of the business. Instead of long tables of numbers, monthly reports are clear, precise, identify each business unit and are accompanied by a commentary explaining deviations from budget and the likely impact on future activity. Management could not be happier and relations between management and the finance department are much improved.
One reason why it was possible to implement a new budgeting and financial reporting system in a matter of months was the quality of the finance team. While their financial management skills were limited, they were experienced accountants, skilled in running an accounting department; all they lacked was guidance.
Of course, the revised budget did not make allowance for a pandemic, resulting in the closure of all business activity. Financial planning has its limits after all. However, management has been quick to see the benefits of a functioning financial management system and is already planning to revise the 2020 budget when business activity recommences.