An article in IoD’s Director magazine reinforced a long-held belief of mine. Many business owners don’t understand the importance of the role that finance plays in business success.
How they feel about the finance function often shows in the language they use. Consider these extracts from the article:
“…whoever the book-keeper is becomes a figure of loathing…”
“The financier often gloats in the power conferred…”
The overall underlying message is that finance people have no useful purpose and are holding back the development of my business.
Unfortunately, this attitude is typical of how business owners regard the finance function. Worse still, the view of the business leader will filter down throughout the organisation. The result frequently is an ‘us and them’ scenario.
On the one hand, there’s the entrepreneur and sales team constantly thinking up new ideas and initiatives to drive the business forward. On the other hand, the ‘jobs worth’ accountants, internal and external, are acting in a way to stop this happening.
This perception is far too common in my view. But what’s the reality?
Done well, finance is a resource that lets business owners stay in control, and lets them quickly identify and react to areas that need their attention. Finance is all about measurement – using the numbers to tell you what’s happening in every area of the business against expectations or objectives.
There are four main benefits of using numbers in this way:
- Business owners can manage by exception. This means that their time is directed to the right areas.
- There is the ability to benchmark for efficiency and productivity improvements.
- Cash flow is optimised so that the business does not fail for lack of it.
- The value of the business is maximised. Tight financial control also offers total transparency when it comes to purchaser due diligence, thereby reducing claims.
If you still question the value of the finance function, consider how the directors of successful large companies and PLCs keep on top of their many products, divisions, locations, subsidiaries and people.
Yes, they rely on key individuals. Yes, they visit branches, and speak to employees, customers and suppliers. But it’s only by effective data-gathering and reporting systems, and acting on that information, that control can be maintained and best practice proliferated.
So why don’t all small business owners buy into this concept? There are a number of reasons:
- They don’t know any better.
- They rely on the external accountant who deals mainly with history and tax saving, rather than with internal performance and future profit improvement.
- Entrepreneurs are seldom numbers people. They shy away from and undervalue things they don’t understand, which include finance.
- The personality of the business owner is very different from the stereotypical finance personality. When the language is different, communication can suffer.
- Because finance as a business function is not valued, the people recruited into finance are often poorly qualified and insufficiently experienced.
The sad fact is that many business owners appreciate too late the importance of finance as a critical pillar sitting alongside sales, marketing and operations.
For the lucky ones who can start again, handing over the finance side of the business to a qualified finance professional when the time is right often becomes a priority. It means that the owner can focus on the areas of the business where they create most value, confident that there is someone who can set up the systems, interpret the information and highlight any anomalies.
The FD Group supplies experienced part-time finance directors to small businesses starting from just one day a month. For a taste of our ‘Part Time FD’ approach to generating cash in your business, go to www.theFDgroup.co.uk and download our free Cash Flow Blueprint.