You Gotta Learn To Say It

For years I've reported the state of affairs or more specifically, the financial state of affairs, to the many stakeholders I’ve had the pleasure to work with throughout my career. Now, having completed this site and ultimately this forum to discuss some ideas, I wanted to take this opportunity to give a sense of how I view the role of the Chief Finance Officer aka Director of Finance, Finance Chief, Treasury Secretary et al.

As with any endeavor, there are underlying principles that form the foundation from which said endeavor derives its purpose, forms its policies, establishes its procedures and ultimately shapes its culture. In a business endeavor, there are several foundational principles that come to mind: profit and loss, cash flow, revenue and return on investment.

Looking over these, I’d like to take up profit and loss because these factors, if not monitored and adjusted for timely and efficiently, will cause the demise of any entrepreneurial endeavor.

What is profit and loss? Simply, the amount you sell a good or service for minus the costs to create and deliver that good or service to the consumer. If the result of this calculation is positive, you have a profit, if negative, you have a loss. Given this definition, I think it stands to reason that the entrepreneurial endeavors that utilize their resources in such a way as to maximize this profit calculation are those that endure whereas those that do not, fail.

Every part of the organization must do their part but the chief of finance is most responsible because in the end, we are talking about the utilization of the company’s cash. He needs to ensure that the cash the company outlays today can be turned into goods/services that can be sold to the consumer for more money than it outlayed. To put it succinctly, the inflow of cash must be greater than the outflow of cash.

I realize, “everybody knows this” and that it’s Business 101 stuff and common sense rules here.

Yet businesses fail.

Why?

You can easily imagine that each executive and each employee for that matter would give you their plausible reason(s) and probably all combined would paint some collective reason as to “why?”. We’ve all heard them and perhaps expressed some of them…”we didn’t have enough start-up capital”, “our website didn’t generate enough leads”, “we didn’t offer any financing to our customers”, “the sales team can’t sell!”, “the marketing budget was too small”, the list is endless.

If I were looking over a failed business and I have, I would say that there was a misapplication of resources to the point that the business could no longer produce the cheapest and the best product possible that was needed and wanted by their customer base. Now you could attack this statement from the perspective of marketing, sales, R&D, human resources but let’s stick to finance for our discussion.

How did finance contribute to a situation where the business could no longer create its cheapest and best possible product that was desired by their customer base?

It didn’t say “No!”.

For sure employees need things in order to do their jobs. There is the office furniture, computers, servers, cloud services, access to key performance metrics, budgets, forecasts, accounts receivable management, inventory management, cash flow, income statements and a whole host of materials that are used to successfully run a business. But in the end, it comes down to people, employees, staff. Collectively they are your team and operating together, they form the attitude, the culture of your business.

At the most basic level, your people need stuff before they can do stuff and so herein lies where finance can make or break an organization: it has to decide how much stuff do they really need.

There are many tools at finance’s disposal to monitor the need of the employees but, honestly one of the most effective can be a simple “no” to a request to spend some of the organizations money followed by an explanation how the expenditure won’t help the organization produce the least expensive, best product.

One thing that's for certain, the organization will try to spend all the money that is available to it (case in point: how many projects have you seen under budget versus over-budget?). In trying to spend the organization's money, your people will give all sorts of reasons: “once we get this, we will be able to…” or “we can’t do our jobs without it!” or “this will solve the problem once and for all” or “we have to have this in order to…” Once again, another list that goes on and on.

Where does this come from? What causes this sort of thing? Why do we have this idea that we need things in order to get things done? For sure, there are times when it is absolutely necessary but I venture to say that there are many more times where if you just pushed it back in their court with a “no” they’d figure out a way to get the job done, and the organization and its resources would be better for it.

Hold the line!