Last updateFri, 24 Mar 2017 12pm


CFOs driving move to subscription-based services


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CFOs are retooling their businesses to drive more revenue from services, which includes professional services, subscription-based services, software/apps delivered as a service, managed services and usage-based contracts, according to a new report.

More than a third of the 163 CFO respondents to the FinancialForce survey said that subscription-based services have become significantly more important for their companies over the past five years. Roughly the same number (26.9%) see those types of services as an important part of the company's growth plan over the next two years.

Currently, 71% of CFOs report that more than half of their revenue comes from services, and almost a third report that all their companies' revenues are service-related. More than half (55%) say that services generate a higher percentage of revenues today than they did five years ago.

"Cloud computing and the prevalence of mobile and connected devices have accelerated the shift towards the services economy, effectively giving every company the opportunity to sell/upsell its customers on subscription-based offerings - creating valuable recurring revenue streams," said John Bonney, FinancialForce CFO. "This transition is changing the underlying architecture of business, as well as changing the role of the CFO, bringing the office of finance into conversations on customer experience and satisfaction as contract and subscription renewals become more important to overall business performance."

Despite the shifting business model, only 17% of or respondents were confident that their operational and technological infrastructure was suitable to handle the increase in service-related revenues.

According to the report, CFOs believe:

CFOs see services as the future of business growth

• One third of respondents say that subscription-based services have become significantly more important for their companies over the past five years.
• 71% of respondents report that their companies derive half or more of their revenues from services, either directly or linked to product sales.
• Just under one third (28%) report that all their companies' revenues are service-related.
• More than half (55%) say that services generate a higher percentage of revenues today than they did five years ago.

A more customer-centric finance function is emerging

• Two-thirds agree that they feel "substantial pressure" to change their finance team's mindset to be more customer-centric and focused on renewal revenue streams.
• 44% of financial executives chose "more involved in product/service pricing decisions"—suggesting that they are aware of the central role that the customer plays in the evolving business model.

CFOs must reach beyond their core capabilities

• Among survey respondents, a plurality (45.5%) say they believe that generating more revenue from services will require their company to make substantial changes in strategic planning. More than 40% of survey-takers chose staffing (42.9%) and operations (41.7%) as requiring substantial changes.
• 50% of respondents chose "more likely to use new metrics to measure business success" when asked how the role of the CFO or finance leader should change to support the "new services" business model.

For many CFOs, the shift to services changes everything

• In the survey, finance executives were asked about the location of the largest "pain points" they would expect to experience because of the adoption of a services business model. The answer: almost everywhere.
• Nearly 40% of respondents (39.8%) chose "staffing and skill sets" as the locus for such pain points, but two other options garnered more than 35% of respondents, including: Billing, Invoicing and Accounts Receivable (37.9%); and Planning, Budgeting and Forecasting (36%). Renewals and revenue forecasting, at 33.5%, wasn't far behind.
Investing in the right tools to access and aggregate data will be essential
• 56.5% say they "somewhat agree" that their company currently has the operational and technological infrastructure that can seamlessly handle any increase in service-related revenues. Just 17.4% "strongly agree" with that statement—suggesting that finance leaders need to direct additional investment toward revamping the company's technology platform, integrating data analytics into data-processing.

To download a full copy of the FinancialForce 2017 CFO survey, go to: http://www.financialforce.com/2017-CFO-Research

How a £1 pen could end up costing you £2.25

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By Adam Noble

Purchasing essential business supplies and services can be a heavy burden on businesses and a real drain on time and money so firms need a diverse range of supplies and services to keep them running smoothly.

This can range from pens and paper to toilet rolls and cleaning chemicals, business cards and brochures, to staff uniforms and office chairs. Managing the provision of these essential everyday products and services is crucial to a business' success.

But the procurement and supply of these can cause all sorts of hassle and headaches for your business, as well as huge hidden costs.

Spending across multiple product categories across a mix of different suppliers can be very time intensive for purchasing and procurement departments. It can also make it difficult to control spend and gain a bird's eye view of company-wide expenditure.

In fact, businesses are often spending 2-3 times more than they need to on indirect procurement. The real cost of buying products can actually be up to 125% higher than the actual invoice cost. In real terms, that could mean that buying a £1 pen could actually cost you £2.25.

Work that out across your total business supplies spend and I'm sure it's a mind-boggling number, so where does it all go?

Storage alone can add 40% and up to 15% can be wasted on creating P/O numbers, calculating invoices and processing payments. Pilferage, waste and obsolescence can tot up to almost 36% and then another 34% can be added on for the time and hassle of doing the actual purchasing – researching the right products, checking prices, ordering, chasing deliveries.

So there's a huge opportunity for significant savings and a new way of working. That's where InOne with Irongate could help. InOne combines all of Irongate's six specialist sub-divisions to enable a business to source everything it needs from just one supplier with one point of contact, one delivery and one consolidated invoice. It can save huge amounts of time, hassle and money on procurement and administration in your business.

Adam Noble is managing director at Irongate Group. Find out more at irongategroup.co.uk/

Survey reveals what CFOs want from their planning tools

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By Robert Gothan

Financial planning, forecasting and reporting is an essential part of any business operation, but due to the volatile economic climate currently facing global markets, it has become more important than ever. Given how crucial it is for commercial success, the amount of time, money and resource allocated to financial planning is unsurprising. However, this investment is not always as effective as it could be.

The problem is that many finance departments are still struggling to draw together multiple data sources and resolve complex adjustments, conflicts and errors. This undermines the finance department's role as a strategic partner to the business, particularly as finance is already being given responsibilities that extend far beyond its traditional scope.

To better understand the challenges faced by the finance function, we surveyed 200 CFOs and Finance Directors about their planning and processes. The results confirmed a number of well-recognised weaknesses and challenges with existing solutions, in addition to clear frustrations with the effort and complexity involved in the financial planning process.

Beyond spreadsheets

One clear finding from our research was the fact that many finance departments are still stuck in the past when it comes to technology, with many still using out-dated legacy systems that are unable to deal with the sheer level of data facing businesses in the global marketplace. These existing systems are heavily reliant on spreadsheets and, as a result, are creating barriers that make it difficult for the finance functions to fulfil its potential.

Spreadsheets are time consuming, over-complicated, lack insight and above all, error-prone. Worse still, firms dealing with spreadsheets often spend too little time reviewing the data they have created, leaving errors potentially undiscovered for months, if not years to come.

The continuing transformation of the finance function has clearly not been matched by progress in financial technology, with cumbersome approaches not working as efficiently as they should be. A staggering four out of five (80%) CFOs have reported a fault with their planning processes when using spreadsheets over the last year, with almost three quarters (73%) being concerned about their firms' reliance on these tools.

There is hope for the future, however: 86% of the finance professionals we surveyed would consider something better if they were able to maintain control. It appears that finance professionals want a system which combines the flexibility of spreadsheets with the control offered by finance-focused alternatives.

Overcoming challenges

Seven out of 10 of the finance departments we surveyed (70%) would like to plan their business investments and expenditure more frequently, but inefficiencies and complicated systems often prevent this from happening. Our findings showed that most finance departments currently conduct their key planning processes just twice a year on average, with over a quarter (28%) completing their planning cycles on an annual basis.

The challenges most frequently noted by CFOs and Finance Directors when it comes to their financial planning are the sheer number of spreadsheets (56%), the huge volume of data requiring management (51%) and the labour intensity needed to collect, validate, analyse and report on this information (49%).

These complexities can be a drain on key resources, potentially leading to a negative impact on the depth and robustness of a plan. By removing the obstacles to more frequent planning and tapping into more insightful data, finance functions will be able to unlock powerful business intelligence, add value and drive performance far more efficiently.

By choosing a flexible solution that can be tailored to fit the needs of each user, businesses can be weaned off their over-reliance on spreadsheets. Finance departments will need to give themselves a bigger voice, however, when it comes to the technology choices necessary to determine the success and effectiveness of their function as a whole, without having to rely on IT.

Better solutions

When automating processes, businesses can often fall victim to choosing between flexibility and control, when in reality both are necessary for effective financial planning. By looking to solutions which save time and money, in addition to safeguarding against costly mistakes, finance departments will be able to plan more frequently, more effectively and with more certainty. In this way, CFOs and Finance Directors will be able to demonstrate the true value of their departments to the success of the business.

By spending less time engaging with spreadsheets and more time engaging with the business, CFOs and finance departments will be able to fulfil the role they are increasingly expected to play when planning for today's volatile economic climate.

 Robert Gothan is CEO and founder of Accountagility

Survey reveals inheritance tax questions

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Nearly 60 per cent of adults in the UK aged over 45 are unaware that the individual inheritance tax threshold is £325,000, according to a new survey.

Over half of respondents (52%) were not aware that the individual inheritance tax (IHT) is levied at a rate of 40%. Of those, just 2% thought the rate was higher meaning the vast majority could be underestimating their estate's potential tax bill.

The Annual Canada Life IHT Survey 2016 also found that, of those who expect to leave an inheritance, the average amount they expect to leave is £862,856. This would leave almost £540,000 (£537,856) above the IHT threshold (called the nil-rate tax band), which when taxed at 40% would leave their estate with a bill of £215,142.

Almost a quarter of respondents did not know that their main home is liable for the tax (24%). ISAs, often marketed as a tax free savings and investment option, are in fact liable for inheritance tax, but 42% thought they were not. 28% were unaware that cash savings and investments were also liable.

Inheritance tax remains a subject people feel strongly about. A large majority (78%) thought that wealth should be passed from one generation to the next without any tax being due, yet the fact is that many don't understand the legitimate ways they can reduce their family's inheritance tax bill.

Commenting on the findings, Karen Stacey, Head of Technical Services at Canada Life, said: "This survey focused on people with enough assets to potentially trigger an inheritance tax bill who are middle aged or older. It is deeply concerning to see so little understanding about inheritance tax among this group, especially for a subject about which people care so passionately.

"Ever-galloping house prices over the last few decades is one of the main drivers of why more people are falling foul of inheritance tax but, when coupled with other assets, estate planning becomes very complicated. To prepare, you need to know you face a potential issue and planning ahead with professional advice can help people to legitimately avoid leaving their loved ones with crippling bills to pay. IHT is not the preserve of the very wealthy."

* Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual inheritance tax threshold (nil rate band) of £325,000.

Why London won’t lose its crown as Europe’s financial capital

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By Simeon Djankov, Executive Director of the Financial Markets Group, London School of Economics and Political Science

Following the Brexit vote, the race to succeed London as Europe's financial capital is on. "We know that groups based in the City are planning to leave for Dublin, Amsterdam, Frankfurt and Paris," the French prime minister, Manuel Valls, told journalists soon after the UK's referendum. Other countries in the European Union are also intent on stealing financial services jobs from the UK. Even the economy minister of Bulgaria, the EU's poorest country, invited City of London escapees. In reality, however, London will remain Europe's main financial centre.

There are three reasons for this continued dominance over European financial services:

1. The pre-eminence of the British court system in upholding the rule of law, including the protection of creditor and shareholder rights.
2. The superiority of the UK's university education in economics and finance over its continental counterparts.
3. The UK's tax and employment regulation that is conducive to the industry's health and profits.
Protecting the interests of creditors and shareholders from the rapacious behaviour of competitors or the state is obviously important for attracting financial services. On this score, the UK is ahead of the rest of Europe. The World Bank's Doing Business project ranks the UK fourth in the world in shareholder protection, behind only Hong Kong, New Zealand and Singapore.

In the balance. Lonpicman/wikimedia, CC BY-SA
France is in 29th place when it comes to the strength of laws protecting shareholders, Germany is 49th. In terms of protecting creditor rights, the UK ranks 19th in the world, France 79th, and Germany 28th. Of course, the rule of law can improve in Europe so that financial investors feel equally well protected in Paris or Frankfurt. But this process will take years, perhaps decades.

In terms of education, markets increasingly require a sophisticated understanding of economics and finance, as well as in-depth knowledge of the legal architecture underlying financial services. Here, too, British universities lead Europe in offering quality education. In the latest Shanghai global ranking on economics education, there are six UK universities among the top 50 and only three continental European universities (one in the Netherlands and two in France). Four of the top five masters of finance programs in Europe are based in London (the only exception being INSEAD near Paris).

And in terms of tax and employment regulation, the financial services sector in the UK benefits from lower corporate tax rates and more flexible employment laws than Germany and France. In the World Bank's Doing Business ranking on paying taxes, the UK is ranked 15th in the world, well ahead of Germany (ranked 72nd) and France (ranked 87th). The UK's lead is even wider in terms of flexible labour regulation. The latter is especially important in the highly cyclical financial sector that annually hires and fires tens of thousands of white-collar professionals.

The finance industry has many fields within it, however, and some parts are viewed as more vulnerable to Brexit. One candidate is foreign exchange trading in the euro – a US$2 trillion-a-day market. Currently, more than 70% of euro trading takes place in London, compared with 11% in Paris and 7% in Frankfurt, according to Bank for International Settlements data. The European Central Bank has already tried banning clearing houses outside the eurozone from trading the euro. But in 2015, the EU's highest court disagreed. Hence London's vulnerability may be overplayed: Brexit does not alter the status quo as the UK has never been a member of the eurozone.

Insurance is another sector that's European activity is highly concentrated in London and where Brexit may hurt. But the UK's main competitors are in Asia (Singapore and Tokyo) and the US. The access that London has to European money is based on proximity and historic relationships, not on being part of the EU. In short, even in insurance markets it is hard to see a rapid shift away from the City of London.

But Brexit may have a negative effect on London's position as the world's best-regulated financial centre. Following the uncertainty around its EU exit, Asian and American markets could take some business away from the City of London. The government's knee-jerk reaction to this development may be to erode some of the UK's financial regulation in an effort to attract more investment. Such a response would be unfortunate as London has attracted a lot of talent because it is a place for clean business practice. This possibility notwithstanding, London is unlikely to lose its crown as a global financial centre.

This article first appeared on The Conversation - http://theconversation.com/uk


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