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Financial people: added value for companies?

with 4 comments

Finance people, cost or investment for companies ?

During my career, I often heard about this sentence: “Finance and administrative people are a cost for the company and do not really provide added value!” For me, it songs a little bit if you are saying that the dashboard of your car is useless and do not provide any added value. And what about if your car engine is loosing oil, and that you are not noticed about it ? You will not drive for a long time.

That sentence was said in the way that only sales people are making money for the company. It is obvious how much important it is to have good sales people in order to generate sales and revenues for a company. But sales are only a part of the business cycle. There are a lot of question related to that cycle and to the others: How much have we to sale and at which price, in order to generate enough margin to cover direct and indirect costs? What about the solvability of the customers? The basics of accounting are very simple: the arithmetic! When I was at school to study accounting, I remember a teacher of financial management explaining this on a very easy way: “You buy a good 1 Usd, you sell it 2 Usd, you generate 1 Usd of cash!”..and if you add the other principle saying that “The deal is closed when the check is in the bank”, then you are able to understand what is accounting.

When people are saying that finance people cost more that they provide added value, they are still seeing the accounts like beans counters. My grand father was entrepreneur, and I remember the time when he was visited on a regular basis by his accountant, who was doing accounting following the old method. No computer, only books, papers and a pencil. But this was a long time ago, and there were a lot of changes since that time ! First of all, it is not necessary to underline the development of information technologies which have a major impact on company organizations. And the major function of these systems is to transform data into information. With the development of technologies, there were transformations in the financial department activities. Today, with these tools, we are able to compile huge ranges of data and provide detailed analysis and reporting.

The other major point is the implication of finance people in the business. Figures have no senses if you ignore what is behind then. The quality of a controller, of a financial analyst is to have a clear picture of the business and the processes related to it, and to ensure that the figures he is providing make sense. The accuracy of figures is important in an aggressive competitive environment where the margins are decreasing. Recently, a media distributor of the Brussels region, with important market shares, felt in bankruptcy, victim of the cd’s market fall, but also of a lack of financial management. When the margins are comfortable, management mistakes have sometimes not big consequences, but when the margins are thin, then it is the beginning ..of the end!

To say that finance people represents more costs than added value is not correct, but it depends the role you are giving to then in the organization. Finance people, as the members of other departments, are partners of the company. They are playing also a key role in the company management. It is true, when you see the frequency the quoted companies have to publicize figures. Finance people have to be aware about the goals and targets, the defined strategies and business plans, in order to provide the appropriate advices and services, and to measure the financial impact of each alternative, to translate each alternative in figures. Let us underline the fact that finance people are not only here to provide statements and figures of the past, but they are here also to ensure the daily business, and to plan the future with the other departments of the company, they are internal services providers.

Do not forget that the success of a company is a common success and not a personal success, there is no personal success without common success.

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Written by Eric Saint-Guillain

March 8, 2010 at 22:44

4 Responses

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  1. Accounting/Finance fulfil 2 main roles : Filling the mandatory and legal papers and measure and observe the financial informations from the company.

    If you look only the first role, You see only the cost of doing business in a regulated country. There is added value doing this but it is easy to forget what you get by having this. Try to get a loan from a financial institution with a lousy accounting.

    The other part that involve collecting the information, validating it and using it, is essential. Your blog post reminds us of that.

    A question related to the role of controlling: How can you solve the manipulation of your measurement system?

    Imagine you want to reduce the time between the issue of an invoice and the payment. For this you could say the measure is easy, just look the average time it takes. Now you give objective to the sales people: They must try to reach a maximum of 30 days. One of the sneaky sale manager now propose to his client to invoice in 2 time: A first deposit invoice that must be paid in the 5 days and after that another one later. The manager will get is bonus but he did game the system and didn’t solve the real problem.

    DomreiRoam

    March 9, 2010 at 00:47

    • You mentionned a good example of collaboration between finance and sales people, regarding customer payment delay. With the financial and economical crisis we faced and are still facing, the point of risk management becomes a major point in the management of companies. Of course, in this example, the sales and financial people have two opposite goals. The sales people wants to sale a maximum of goods or services, and the finance people want to ensure the receivable portfolio, by implementing a credit management system with credit limits for customers. Both of them have advantage that the invoices are covered and will be paid at the due date..in order to pay the salaries ! This example shows how it is important to maintain a constructive collaboration between department. We have not to see the financial people as somebody who wants to prevent sales people to reach his target, but as a partner who wants to bring gidelines in order to achieve the goalss, but also to secure the business.

      Eric Saint-Guillain

      March 9, 2010 at 09:37

  2. Hi – I would like to say thank you for an interesting site about a subject I have had an interest in for a while now. I have been looking in and reading the posts avidly so just wanted to express my gratitude for providing me with some very good reading material. I look forward to more, and taking a more active part in the discussions here, whilst learning too!!

    Jaquelyn Dutschmann

    March 11, 2010 at 14:25

    • Thank you very much for your comments. Do not hesitate to make remarks or advices. It is a precious feedback in order to maintain a quality level.
      Regards,

      Eric Saint-Guillain

      March 11, 2010 at 19:26


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