The Key Operational Processes in Business

Hello hello,

Thought I’d change things up today and talk about a more random topic.

I used to work as a management consultant for companies on the NASDAQ and TSX.

As a part of my work, I would interview process owners to understand their processes, document them, and provide recommendations for improvement.

A big component of this was understanding and evaluating risk (fraud risk, enterprise risk, financial reporting risk).

Then there was also transaction level testing, which is the grunt level level.

Anyways, it was a multi stage process.

Here are the key operational and financial processes in business.

Of course, they would need to be adapted for industry-specific needs (ie. a mining company has operational risks than a blockchain company).

But they can still be summed up into a few key categories:

Revenue to Receipts - From customer order to collection of payment.

• The key operating risk is accurate invoicing and collection of payment to reduce the number of days of A/R outstanding

• The key reporting risk is to ensure that all reported revenue had actually occurred (no overstatements)

Procure to Pay - From when company places an order to suppliers or vendors to settlement of payment

• Because this relates to outgoing cash, the key operating risk is to ensure validity of suppliers and invoices, especially if volume is high and wires and EFTs/ACH’s are made in large batches

• Phishing and cybersecurity attacks are common at the enterprise level

• For a larger company that holds inventory, the 3-way match is a critical internal check that provides proof for the existence of the inventory

Inventory - From purchase to sale of inventory. This only applies to companies that sell inventory, of course.

• Simple: Buying clothes from Asia and selling in North America for a markup.

• Complex: Forestry company logs trees and manufactures the wood with 1000’s of SKUs in finished products.

• There are huge range of risks related to inventory. It is all company and industry specific.

• External accountants are concerned about valuation and existence for reporting purposes

• Internal accountants would deal with margins, pricing, costing.

Treasury Management - Reflects internal policies of how cash is managed

• Key operating risk is ensuring that cash is allocated in accordance to company’s objectives (whether it be for new projects and expansion, hiring). This is mitigated with cash flow forecasting, proper budgeting and forecasting processes, etc

• Misappropriation of funds and proper cash controls for incoming receipts and outgoing payments. At very large companies ($500 mil+ ), there could be even 1 person solely dedicated to monitoring cash balances and approving payments

HR & Payroll - Generally very low risk because companies rarely mess this up. I won’t get into this in detail, but if a company does mess this up (ie. not paying people on time, paying people incorrectly, etc), everyone knows.

Been thinking of making more videos related to business finance on my channel.

Shoot me a response if this e-mail or these videos would be of interest to you. (I often wonder whether people even care about this type of stuff)

Join my Skool community if you want to connect with other business owners to learn digital marketing techniques.

Xoxo,
Alice