Download - Financial Management Challenges
Financial Management Challenges and Solutions
Presented by: Mohamad Al-Shami ,CPA (Certified Public Accountant, New Mexico, USA)
MCTS (Microsoft Certified Technology Specialist, AX GP,NAV)
Contents
Outline the key Financial Management challenges, especially in Saudi Arabia .
Describe the leadership role that the Financial Management must play in supporting the decision-makers through this challenging time.
Key Messages
An effective Financial Management function is forward looking, acting as the business’s “head lights”: anticipating issues and seeking effective resolutions.
Financial Management function must balance a professional understanding with practical skills in advanced management accounting, risk management, process and structure cost control, chargeability and revenue management.
Section 1:
“Financial Management”Why is it Challenging?
Stability and transparency Ensures compliance against stated standards
(Local & International & Corporate ) Enables efficient and effective use of resources Defines roles and responsibilities Enables performance measurement against
agreed expectations Fulfills legal obligations and mandate
Why Financial Management is important?
Credible Information: ability to produce timely, reliable, usable and accurate financial and risk information to decision-makers and DZIT.
Communication: providing clear and accessible financial information to project managers , local and regional directors
Capacity: revitalizing financial capacity by attracting, retaining and developing financial talent while complying with local requirements
Why is Financial Management Challenging?
Credibility – a trusted business advisor, providing accurate, timely and reliable financial information and advice;
Competence – combine business knowledge with financial expertise to optimize value added;
Commitment – a shared commitment to corporate goals within a responsible financial framework
Communication – open communication across related entities, with external professional organizations and counterparts in other region.
Key Principles in the Financial Management function
Key Challenges & Solutions
Legal Entity Framework & Capital Structure Registration (CR , Labor Office , Zakat & Tax Department , GOSI , Medical
Insurance) Local Company (100% Saudi)-ZAKAT Foreign Investor (100% Non-Saudi) –TAX – SAGIA Equity & Debts Mixed ( Saudi And Non-Saudi)-ZAKAT & TAX - SAGIA Working Capital Management Current Assets – Receivable ( Government Sector will pay but with delay and
more restrictions ,Zakat …) , Private sector may not pay but has less liquidity days (30 to 60 Days)
Current Liabilities - Payable ( Standard terms 30 Days) Implement pay-when-paid terms and extend Payment terms with vendors , bank
financingBank Relationship Local banks (Guarantor has to be Saudi) International Banks (Guarantor has to be the parent company) with limitation for
new companies International Banks that dealing with corporate will have more flexibility
Key Challenges & Solutions
HR & Payroll Administration Corporate policy Versus Saudi Labor Law Timesheet and Payroll process with cut-off schedules Working Hours Post Employment Benefits Modifying & Approving HR policy from the Ministry of labor
Resource Challenges (Saudization) Impact on getting Visas for global mobilization Impact on transferring sponsorship for local mobilization Organizational complexity, and issues with getting the right people are most
likely to pose risks to finance’s effectiveness ( Accountants almost 100%) Training commitments Local mobilization (Saudi – Non-Saudi) with interdisciplinary background
combines analytical skills with financial Business Visit Visa (With WHT 5%)
Key Challenges & Solutions
Bank Facilities & Financing Margins & Rates & Leverage Ratio Local guarantor Project Financing (Private Versus Government clients) Signatories restrictions and on-line access
Cash management Payment by cash to employees with business visit visa (WHT) Local purchases Issue corporate credit card , and transfer payroll via banks
Tax Management Zakat 2.5% for Saudi Partner Tax 20% for foreign investors Withholding Tax 5% , 15% , 20% Non-Deductible cost ( Provisions , Headquarter allocated cost with
100%,…)
Key Challenges & Solutions
Fiscal Period Calendar year Versus fiscal year (Audit , Tax Department) Closing & reporting cycle (monthly, weekly, quarterly, yearly) Define the Fiscal year as head quarter in the article of association
Corporate Governance The Board , Executive committee Financial Policies & procedures Dividend Policy Delegation of authority DOA HR & Payroll Policy
Regulatory Compliance Corporate policies SOCPA ZAKAT & TAX
Key Challenges & Solutions
Geographic impact Resources availability Business Relation Salaries Jeddah & Riyadh & Eastern region Tax & Zakat Department
Administration Department Providing employment benefits ( Accommodation , Transportation ,
Communication ,Government relation…) Cash payment to employees might result with higher cost but less
inefficient works Outsourcing most of the government relation function
Key Challenges & Solutions
Internal Control Build an Effective Financial Management Organization Structure With
Clear Accountability Employee Rotation
Audit ( Internal , External , Corporate) Big four versus local auditors (Zakat ,Tax ,Fees) Corporate (Internal & External Auditors)
Technology Challenges Financial Management Systems Are Not Capable of Providing
Accurate Data Lack of expertise in IT supporting the technology. Corporate systems and regional IT support (MPLS)
Key Challenges & Solutions
Timely Financial Reporting & Analysis DZIT (Government Clients). Local Management & Regional office Increased complexity of transactions , Internal and external
reporting requirements (Corporate ,SOCPA, IFRS). Use standard reports & performance metrics & dashboards Follow corporate fiscal year
Key Challenges & Solutions
Direct Cost & Overhead Overhead Allocation Challenges (hours ,revenue ,space , employee
count,…) Standard Costing reconciliation (payroll versus costing) Proposal Costs
Billing & Revenue Recognition Fixed Price (Lump Sum) , Cost Plus (unit rate & pass through cost) Billing Process & WIP Collection process Provision for doubtful debts Contract terms & conditions ( proper legal advice)
Proposed Reporting Structure
Reportable Parameters
Segment Op OH Non-Op OH
Account
Revenue
Gross Margin
Contribution Margin
EBIT
Enterprise Value
ENTERPRISE VALUE
SAUDI
Currency
Ownership
Time
Entity
Scenario
Version
Project Direct Costs
Project Delivery & Support
Interest & Tax
Operational Support
Project
Segment
Section 2:
“Think globally, act locally”
Financial Management Roles
Financial Manager must exercise Financial Leadership
To be successful in this role, in supporting financial decision-making, we must:
establish a robust Financial Management framework; emphasize value for money and Gross Profit / EBIT
accountability; ensure appropriate controls are in place and functioning; apply financial risk management principles; and ensure transparency in financial reporting through online /
Web access. However, the Financial Management function’s “value” is fully
realized by supporting decision-makers with financial analyses that identifies: links between costs and performance; opportunities to reduce direct and indirect costs; and opportunities to increase delivery efficiency in meeting clients
expectations.
Financial Management
CatalystCatalystStrategistStrategistStewardStewardOperatorOperator
Financial Management:
Focused on the prudent use of resources by standardizing, consolidating and automating processes.
Procedural policies.
Establishing financial data integrity, timeliness and accuracy
Results Planning: Ensuring effective
budgeting, forecasting and planning systems in place.
Asset/Cash Management.
Establish policy framework
Risk management and effective controls
Decision Support: Focused on performance
management and supporting effective decisions
Ensure value-for-money
Policies that strengthen performance by promoting positive behaviors.
Robust Cost/Benefit analysis
Leader: Support decision-makers
and identify opportunities for projects delivery
Finance integrated with policy and operational considerations
Enterprise risk management
Trusted AdvisorAnalysisControls
Required Elements
Management Decision Support Financial evaluation expertise Business risk management expertise Financial performance management
expertise
Business Planning and Budgeting Risk-based Fiscal planning expertise Operating and cash-flow budgeting
expertise In-year fiscal management expertise
Accounting and Financial Reporting Accounting policy application and
control expertise Budget control expertise Costing and pricing expertise Financial reporting expertise Financial information analysis and
integrity assurance expertise
Risk Management, Accountability and Control Project risk management and
control expertise Asset and Liability risk
management and control expertise
Financial Competencies needed
Business Knowledge
Effective Costing, Planning & Evaluation
Risk Management
Standards Compliance (Local ,Corporate , International)
Effective Communication
Performance Management
Forecasting, Planning and Budgeting
Accounting/ Financial Knowledge
Valued-added Advice
Value-for-
Money
StrategicFocus
Competencies
Section 3:
Looking Forward
Informed Decisions: Further integration of risk and performance management into the fabric of financial decision-making.
Effective Governance: establishing clear roles and accountabilities, linked to decision-making structure and supported by a robust policy framework.
Financial Leadership: to set priorities, support capacity improvements and provide a strategic financial “voice” at the decision-making table.
Financial transformation: continue to migrate the financial function away from a transaction-rules focus to an “advisory” decision support and oversight role.
Business “ownership” of Finance: progressively, delegate Financial Management to project managers, while maintaining accountability and oversight.
Measuring Progress: establish clear performance measures, evaluate progress toward achieving the desired goals and taking remedial action when necessary.
Communications: open and transparent communications to allow knowledge of risks, challenges and solutions to flow throughout the organization(s).
Financial Capacity: attract, retain and develop financial capacity that is aligned to future needs.
Key Requirements for Success
If we’re not aligned , we’re sunk…
Questions
Thank You