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What Is Strategic Finance?
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March 29, 2023
May 10, 2023
1
min read

What Is Strategic Finance?

Broadly speaking, you can divide the activities of a finance function into two camps:

  1. Backward-looking
  2. Forward-looking

When most people hear the word finance, they tend to think of the backward-looking stuff first - things like bookkeeping, accounts payable, taxes, and expense management.

This stuff is an absolute must-have. You should be paying enough to get it done well because it will cost you more later if you have to clean it up. But it’s kind of a cost of doing business. It’s not the set of activities that are going to unlock massive value in your business.

That’s where the forward-looking bucket comes in. This bucket contains the activities that are vital to making the business more profitable and more valuable in the future than it is today, including forecasting, demand planning, scenario analysis, variance analysis, cash & working capital optimization, fundraising, and more.

👉 This bucket is called strategic finance, and if performed correctly, these activities should be uncovering opportunities every single month that can make the business grow faster, keep more of the revenue it generates, and produce more free cash flow.

For example, a great strategic finance function might notice that shipping costs per order have been increasing for the last few months, and create a scenario to understand the impact on EBITDA from switching carriers or 3PLs to reduce costs. In some cases, it might be a few thousand dollars - maybe not worth the effort. But in the case of a high-volume CPG business, that change might be worth millions in profits - well worth the lift.

Or if you run a subscription business, they might look to better understand the impact of increasing the subscription rate by offering a higher discount on first-time subscriptions - a move that can be scary but may unlock massive benefits in terms of customer LTV and cash flow.

In both cases, the key is that they can quantify the financial impact of these projects (and compare it to the other projects on your backlog) so that you can confidently allocate your scarcest resources - time, capital, and people - to get them done.

🤔 Sounds great, right? So why is almost every scaling consumer brand underinvesting in this area?

The short answer is that adding a great strategic finance function typically means hiring an expensive, well-trained, highly specialized human. The very best of these folks blend a strategic business background with advanced skills in planning, financial modeling, and data analysis. In consumer, the top 1% of them marry those skills with an expert-level understanding of direct marketing, merchandising, demand planning, and working capital management. As you might expect, these people aren’t cheap. You could easily expect to pay $175-$250k for this position, and in most cases, they’d be worth every penny.

You can try to get this sort of value from a so-called “fractional CFO,” but the reality is that most of these shops are glorified accounting firms that lack the data and analytics chops to really move the needle. Even the very best ones are often hamstrung because their customers don’t have the right systems and tech in place to get them the data they need to do their job well, so you end up paying $250/hr rates for someone download reports from Shopify and to copy and paste into Excel.

That’s where Drivepoint comes in. They provide a complete strategic finance solution designed specifically for scaling consumer brands:

  • A complete set of tools & technology to do the job faster and with more accuracy than any human alone
  • A team of consumer strategic finance experts that get to know the unique aspects of your business and proactively work to uncover insights

💡 Schedule a demo today to see how Drivepoint can help your business.

The best part? The tools and tech they’ve built allow them dramatically increase the efficiency of their team and yours, so they can provide the same value you might from a strategic finance hire at a fraction of the cost.

Scaling brands like Oats Overnight, Earth Breeze, Geologie, Branch Furniture, and Guardian Bikes are using Drivepoint for strategic finance to unlock more growth, profits, and cash in their businesses every single month.

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