Importance of good relations between sales and finance | Sunday Observer

Importance of good relations between sales and finance

17 October, 2021

Financial results are one of the most vital objectives in a commercial organisation. Also, organisational revenue is a key objective of sales management. These two important aspects are closely interrelated.

As such, sales management invariably has financial implications. The performance of the sales department, therefore, directly affects the sustainability and growth of the organisation while the finance department controls the expenditure. 

The ultimate goal of every business is growth by optimising profits with the least possible costs. Sales and marketing functions require comparatively considerable investments from the organisation to generate profits through revenue. However, any business does its best to reduce expenses and enhance return on investment. This cannot be achieved without a good understanding between sales and finance departments.   

The ultimate goal

The ultimate goal for every business is to maximise profits while minimising costs. Functions such as sales and marketing require an investment, in order to generate revenue and profits. However, businesses strive towards reducing their expenses and increasing their returns on investment. However, without a good relationship between sales and finance departments, this goal cannot be achieved successfully. 

Companies need efficient financial processes and performing sales teams. The sales department focuses predominantly on expanding the customer base while the finance department primarily is responsible for increasing profits through the process. Hence the roles of both departments are equally important to an organisation. 

Effective communication and collaboration of the two departments are essential and disputes between the two departments can adversely affect the success of an organisation. Hence, leaders must focus on developing operational strategies to cultivate close association of finance and sales teams.   

Confrontational vs collaborative 

However, according to my long years of experience as a business executive specialising in sales, the relationship between finance and sales is often confrontational rather than collaborative. Sales and finance departments are prime examples of having issues while working to achieve the same goal. The internal friction, if it exists, can waste valuable human energy and could produce negative results. 

This hostility can damage an organisation irrespective of the size, business volume, or products offered. However, the negative influence can be more harmful to middle-market companies whose processes are somewhat informal where more personal interaction prevails.  

Sales and finance departments are prime examples of having issues even when working towards the same goal. The company’s success relies on the ability to ensure that the two departments can work together to drive business goals.

The sales team

By nature, the sales department consists of confident, excessively optimistic, and action-oriented people. They present forecasts most often based on their past experiences. Although there are many metrics, models, and mathematical formulas available for forecasting, ultimately these figures end up as the responsibility of the sales team. The goal and responsibility of the sales department is to concentrate on revenue and growth. Salesmen often think that finance people are disbelievers who are trained to be skeptics. 

The main objective of a sales department is to concentrate on closing deals and increase revenue. They expect and rely on the finance team to develop and provide finance policies to suit the clientele. The sales team is not keen on monitoring the funds spent on accomplishing their task of closing deals. This disparity can create friction.

The finance team    

On the other hand, the finance department is paying attention to the cost and financial efficiency of the operation as their priority. Most often, they distrust, quite understandably, the accuracy of such forecasts. In my experience, the finance people also doubt the expenditure on the sales effort most of the time and customarily attempt to cut the budgets of the sales department. They assume that salespeople have to produce results from every call they make on a customer.  

The major purpose of the finance department is to develop budgets focusing on earning profits while limiting costs to the optimum level.  They use projections of the sales department to prepare the overall expenditure of the company. Their job is to prepare the financial policies to benefit the organisation as a whole. Hence, the finance team has to completely rely on the predictions and balance out the revenue and expenditure.  

Good companies correctly identify this disparity and set up strategies to make the finance and sales teams cooperate. In my personal opinion, both parties have the best intentions towards the organisation’s success.  The most important strategy to do away with the friction is to make the sales team and the finance team focus on the priorities of their relationships and understand the importance of both functions.    

Businesses are driven by well-defined processes. Usually, they stumble because of people and not because of the processes. Lack of intention in relationships can harm the thin line of processes and procedures that can hamper the overall performance of both finance and sales. Particularly, the impact of negative relationships can cause more harm to smaller companies where the teams are small and the collective effort is more.  

Typically, conflicts between sales and finance departments are based on expenditure. A sales team may require additional credit lines, discounts, free offers, and so forth and constantly complains about limited budgets.

A common complaint by salesmen is that the finance department cuts important customer benefits. On the contrary, the finance team may complain that the sales team is spending too much money to achieve sales targets. I have seen and experienced this phenomenon from both sides of the coin.   

Focus on inter-relations

Organisational leaders must focus on improving inter-relations between sales and finance teams. Facilitation on communication must be arranged to avoid conflicts of interest. Specifically, improving relationships of lower levels of employees of the two departments is vital to produce results. Leaders must realise that sales and finance play significantly different roles in the organisation and the reconciliation of such roles is the bottom line.  

Investing in sales training and development is a strategy that pays off quicker than any other activity as per experts on the subject. Therefore, the investment in sales training is always productive to earn revenue. Good finance managers know this fact and spend extra rupees without much hesitation. They certainly prefer the sales team members out in the field, selling face to face in the street than any other method.  

Forecasting accuracy

As discussed, forecasting accuracy is one grey area where doubts and mistrust emerge between sales and finance. Therefore, improving the accuracy and transparency of projections constantly is essential. However, projections are based on past data and experience and accuracy cannot be measured as a certainty in any forecast in any sphere. Hence, in fairness to sales forecasters, a margin for fluctuations must be accepted by the finance team.  

Concentrating on key strategic relationships on customer relationships and profitable accounts by finance and sales leaders must be done in collaboration. As explained, both of the departments have one ultimate goal and that is improving profits. Therefore, a proper understanding of the finance team is required to fathom that salespeople have to maintain lasting customer relationships at a reasonable cost is justifiable.

Most often, incentives, commissions, additional facilities, and even sales targets are only loosely connected to profitability in small and mid-market companies. Therefore, agreeing on shared information, establishing reasonable KPIs, and creating a common dashboard can be immensely useful to stop finger-pointing and move to handshaking.    

The leaders of the finance and sales departments have a significant impact on the organisation’s smooth functioning. While the finance leaders must concentrate on understanding customers, sales leaders must focus on profitability and on sustaining revenue at the best cost.

Therefore, re-engaging and re-energising the relationship between these important functionalities is a key to lasting success. Ideally, these departments get together to improve their ability to grow the ‘relationship capital’ that provides enterprise growth in the long run.