Business Processes

What is a business process?

 
 
A business process is a series of steps performed by a group of stakeholders to achieve a
concrete goal. Each step in a business process denotes a task that is assigned to a participant. It
is the fundamental building block for several related ideas such as business process
management, process automation, etc.
 
While there’s a deluge of things written and said about business process management,
sometimes it’s hard to think about them in both abstract and concrete terms.
 
The importance of business processes
 
 
The need for and advantages of a business process are quite apparent in large organizations. A
process forms the lifeline for any business and helps it streamline individual activities, making
sure that resources are put to optimal use.
 
Key reasons to have well-defined business processes
Identify what tasks are important to your larger business goals
Improve efficiency
Streamline communication between people/functions/departments
Set approvals to ensure accountability and an optimum use of resources
Prevent chaos from creeping into your day-to-day operations
Standardize a set of procedures to complete tasks that really matter to your business

The 7 steps of business process lifecycle

Define your goals

Plan and map your process
Set actions and assign stakeholders
Test the process
Implement the process
Monitor the results
Repeat
 
Step 1: Define your goals
What is the purpose of the process? Why was it created? How will you know if it is successful?
 
 
Step 2: Plan and map your process
What are the strategies needed to achieve the goals? This is the broad roadmap for the process.
 
 
Step 3: Set actions and assign stakeholders
Identify the individual tasks your teams and machines need to do in order to execute the plan.
 
 
Step 4: Test the process
Run the process on a small scale to see how it performs. Observe any gaps and make
adjustments.
 Step 5: Implement the process
Start running the process in a live environment. Properly communicate and train all stakeholders.
 
 
Step 6: Monitor the results
Review the process and analyze its patterns. Document the process history.
 
 
Step 7: Repeat
If the process is able to achieve the goals set for it, replicate it for future processes.
 
 
 
 Procurement to Pay
 
 
Procure to pay is the process of requisitioning, purchasing, receiving, paying for and
accounting for goods and services. It gets its name from the ordered sequence of procurement
and financial processes, starting with the first steps of procuring a good or service to the final
steps involved in paying for it.
 
The procure to pay process
The main steps in procure to pay, starting with the procurement side, include, first, a requisition
order -- essentially, an internal request to purchase something -- which starts the ordering
process during which a purchase order (PO) is created. The next steps involve receiving the
good; common documents created in this phase include an advanced shipping notice (ASN) and
order confirmation. Finally, there is the payment side, which typically includes creating an invoice,
arranging to pay suppliers and recording the transaction in the accounting system.
 
In practice, most organizations have many additional steps in each major phase of procure to
pay. Procurement might require the use of an approved catalog of products or involve the
issuance of a request for quotation (RFQ). Managerial approval is typically required at key
decision points, such as before a PO is sent to a supplier or before payment is approved. There
are often processes to inspect received goods, acknowledging their acceptance and entering
them into inventory.
 
Procure to pay platforms
Considering the complexity of the procure to pay process in most companies, it's not surprising
that some software vendors have attempted to develop what they claim are end-to-end suites
that automate and integrate each step. However, the reality is procure to pay began as a mostly
manual process conducted on paper, with components of it being gradually computerized in
recent decades.
 
Most vendors of ERP software -- Infor, Microsoft, Oracle and SAP being the market share
leaders -- provide modules that handle the major phases of procure to pay. ERP suites typically
have procurement and order management modules, as well as inventory, warehouse
management and logistics functions for the middle phase of procure to pay.
 
ERP core financials, including accounts payable and general ledger functions, handle the
invoicing, payment and accounting stages. Some ERP vendors claim to have integrated the
procure to pay process across their various modules.
 
Numerous vendors specialize in one of these ERP business processes and support at least parts
of the procure to pay workflow. Vendors of e-sourcing and procurement software, such as SAP
Ariba and Coupa Software, have significant procure to pay features. A few niche players, among
 them Basware, BirchStreet Systems, GEP, Jaggaer, Verian and Zycus, claim to automate the
entire process.
 
One of the biggest benefits of integrated procure to pay suites is their ability to consolidate data,
enabling a process called spend management that executives can use to get more control over
expenses.
 
 
 

 
Requisition Order Placed
Requisition orders are a formal request for goods or services. In cases where every item can be
defined in advance, most requisitions are defined and built in to the procurement plan. Even the
most carefully defined plans, however, can need additional materials due to spoilage, unforeseen
events, scope creep from clients, or new ideas to make improvements on the original plan. Well-
crafted procurement plan budgets have a cushion built in for just such circumstances, and
requisition orders can be submitted later in the process if necessary.
 
Vendor Selection
For new orders, the vendor selection process may need to be brought into play. Working from a
short list of vendors, the procurement department sends a request for proposal (RFP) outlining
the requirements.
 
Suppliers return a bid on the job, detailing turnaround time, price, and pertinent material
specifications.
 
During the process of choosing suppliers, negotiations take place. In addition to quality, cost and
delivery schedules, the procurement department will explore potential advantages such as:
 
● Year-over-year price reduction
● Quantity discounts
● Future improvement in quality
● Freight and insurance costs
 ● Compliance requirements must also be considered. The industry may have federal
standards to meet, and the company may have a social conscious agenda endemic to
company culture.
 
Corporate social responsibility is a rising concern among consumers, and businesses are
expected to meet certain standards of sourcing in order to please their customer base—and
avoid needless risk exposure. For example, many companies have committed to fair labour and
environmental standards vendors must be able to meet to avoid consumer backlash.
 
Once negotiations with all the short-listed vendors are completed and the most advantageous
deal is identified, a supplier is chosen according to the selection criteria outlined in the
procurement plan and a purchase order is issued.
 
Purchase Order (PO) Issued
Once the requisition order is approved, a detailed order form with amounts and delivery
requirements is submitted. The PO is sent to the appropriate vendor for fulfillment.
 
Receiving Documents Logged
The vendor delivers the goods or services and the relevant receiving document is entered, with
line items verified to ensure that everything ordered is delivered.
 
Invoice Received
The vendor submits an invoice, which is entered into the system. Automated systems often
support electronic invoicing (eInvoicing) through the use of vendor portals.
 
Invoice Reconciliation
The invoice is reconciled against the PO and relevant documents from the receiving process. In
automated systems, the three-way matching process compares the purchase order and receiving
document with the invoice to confirm that the goods were delivered as ordered and billed
accordingly. Line items that do not match are flagged and reported for investigation.
 
Accounts Payable
Invoices approved for payment are routed to AP. Payments are made, and the accounting
system is updated.
 
 
 
 
 
 
 
 
 
 
 
 Order to Cash
Order to Cash, also known as O2C or OTC, refers to the set of business processes for
receiving and processing customer sales orders for goods and services and their payment.
These processes are at the heart of all businesses and unless they are managed efficiently and
accurately, organizations would not only face financial problems, but also reputational issues.
Every department in a given company is affected either directly or indirectly by the Order to Cash
system.
 
Steps of the Order to Cash Cycle
● The cycle begins with the system receiving orders from the customer. This could be via
email, Internet, sales person, fax or by some form of Electronic Data Interchange. In
some businesses, the order could be a simple purchase request for a particular product,
while in other service oriented or wholesale businesses, the customer and the company
would enter into a long-term or short-term contract.
● The company might even conduct a credit review of the customer before accepting the
order, especially if they have plans of offering the customer deferred payment options.
● The order is documented and the company begins the task of fulfilling the order.
● Once the product has been shipped and delivered, or the service has been fulfilled, the
most important stage of the cycle begins with regard to cash management. The invoice is
created and sent to the customer for payment.
● After the customer has made the payment, the accountants note the entry in the general
ledger.

 
 
 
 
 
 
 
 
 
 
 
 
 Fixed Assets, Hiring, Payroll
A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses in
its operations to generate income. Fixed assets are not expected to be consumed or converted
into cash within a year. Fixed assets most commonly appear on the balance sheet as property,
plant, and equipment (PP&E). They are also referred to as capital assets.
 
How a Fixed Asset Works
A company's balance sheet statement consists of its assets, liabilities, and shareholders' equity.
Assets are divided into current assets and noncurrent assets, the difference for which lies in their
useful lives. Current assets are typically liquid assets which will be converted into cash in less
than a year. Noncurrent assets refer to assets and property owned by a business which are not
easily converted to cash. The different categories of noncurrent assets include fixed assets,
intangible assets, long-term investments, and deferred charges.
 
A fixed asset is bought for production or supply of goods or services, for rental to third parties, or
for use in the organization. The term “fixed” translates to the fact that these assets will not be
used up or sold within the accounting year. A fixed asset typically has a physical form and is
reported on the balance sheet as property, plant, and equipment (PP&E).
 
When a company acquires or disposes of a fixed asset, this is recorded on the cash flow
statement under the cash flow from investing activities. The purchase of fixed assets represents
a cash outflow to the company, while a sale is a cash inflow. If the value of the asset falls below
its net book value, the asset is subject to an impairment write-down. This means that its recorded
value on the balance sheet is adjusted downward to reflect that its overvalued compared to the
market value.
 
When a fixed asset has reached the end of its useful life, it is usually disposed of by selling it for
a salvage value, which is the estimated value of the asset if it was broken down and sold in parts.
In some cases, the asset may become obsolete and may no longer have a market for it, and will,
therefore, be disposed of without receiving any payment in return. Either way, the fixed asset is
written off the balance sheet as it is no longer in use by the company.
 
 
 
Special Considerations
Fixed assets lose value as they age. Because they provide long-term income, these assets are
expensed differently than other items. Tangible assets are subject to periodic depreciation, as
intangible assets are subject to amortization. A certain amount of an asset's costs is expensed
annually. The asset's value decreases along with its depreciation amount on the company's
balance sheet. The corporation can then match the asset's cost with its long-term value.
 
How a business depreciates an asset can cause its book value—the asset value that appears on
the balance sheet—to differ from the current market value at which the asset could sell. Land
cannot be depreciated unless it contains natural resources, in which case depletion would be
recorded.
 
 
 
 
Fixed Assets vs. Noncurrent Assets
Fixed assets are a noncurrent asset. Other noncurrent assets include long-term investments and
intangibles. Intangible assets are fixed assets, meant to be used over the long-term, but they lack
physical existence. Examples of intangible assets include goodwill, copyrights, trademarks, and
 intellectual property. Meanwhile, long-term investments can include bond investments that will
not be sold or mature within a year.
 
Benefits of Fixed Assets
Information about a corporation's assets helps create accurate financial reporting, business
valuations, and thorough financial analysis. Investors and creditors use these reports to
determine a company's financial health and to decide whether to buy shares in or lend money to
the business. Because a company may use a range of accepted methods for recording,
depreciating, and disposing of its assets, analysts need to study the notes on the corporation's
financial statements to find out how the numbers were determined.
 
Fixed assets are particularly important to capital-intensive industries, such as manufacturing, that
require large investments in PP&E. When a business is reporting persistently negative net cash
flows for the purchase of fixed assets, this could be a strong indicator that the firm is in growth or
investment mode.
 
Examples of Fixed Assets
Fixed assets can include buildings, computer equipment, software, furniture, land, machinery,
and vehicles. For example, if a company sells produce, the delivery trucks it owns and uses are
fixed assets. If a business creates a company parking lot, the parking lot is a fixed asset. Note
that a fixed asset does not necessarily have to be "fixed" in all sense of the word. Some of these
types of assets can be moved from one location to another, such as furniture and computer
equipment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 Payroll
 
 
Payroll accounting involves a company's recording of its employees' compensation including:
 
gross wages, salaries, bonuses, commissions, and so on that have been earned by its
employees
withholding of payroll taxes such as federal income taxes, Social Security taxes, Medicare taxes,
state income taxes (if applicable)
withholding for the employees' portion of health insurance premiums, employees' contributions to
savings plans, garnishments of salaries and wages, employees' contributions to United Way, etc.
employer's portion/expense for Social Security taxes, Medicare taxes, state and federal
unemployment taxes
employer's portion/expense of fringe benefits such as health and dental insurance, paid holidays,
vacations and sick days, pension and savings plan contributions, worker compensation
insurance, etc.
Example of Payroll Accounting
If a company's employees are paid weekly based on hours worked, the payroll processing is
likely done during the first few days following the work week. If the company's accounting periods
are calendar months (and the calendar year), the company will have to accrue for the wages and
benefits earned by the hourly paid employees (which are not yet paid or recorded in the general
ledger accounts) as of the last day of each month.
 
Introduction to Payroll Accounting
 
 
It's a fact of business—if a company has employees, it has to account for payroll and fringe
benefits.
 
In this explanation of payroll accounting we will discuss the following payroll-related items:
 
 
● Gross salaries, wages, bonuses, commissions, and overtime pay
● Payroll taxes withheld from employees' gross pay
● Payroll taxes that are not withheld from employees and are an expense of the employer
● Employer-paid time off for holidays, vacations, and sick days
● Other employer expenses including worker compensation insurance, medical insurance,
and others