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


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%)


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%,…)


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


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


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)


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


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

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