Follow the money…..

Happy new year to you all! Many writers tend to start their first blog of the year by offering predictions for the coming year but I am going to resist that temptation, not least because 2012 is shaping up to be the most unpredictable year ever!

With the New Year only a few days old we have already had a raft of positive and negative statistics  lending themselves to both optimistic and pessimistic interpretations. Based on this I think it is safe to say that “Old Dogg’s Alamanac” will not be making an appearance in 2012.

Finance Directors as a breed like to know where we and our businesses stand at any one time so this uncertainty does not sit easily with us. Nonetheless, like many of the companies we work with, we have had to change our way of thinking and carrying out scenario planning with copious “what if” analyses is now as regular a part of the FD routine as monthly management accounts and weekly cash flows.

However life and business goes on and there remains a need to find and develop profitable opportunities. We can’t continually keep saying “no” or “wait”. But how do you get them? Moreover how do you evaluate them?

My mind goes back to my days as a naïve young accountant in industry and when I was introduced to a newly appointed business development director. Keen to learn about life beyond the finance function I asked him how he would go about getting new work in. I expected him to say he carefully researched what projects were happening and where, and then worked out which ones he thought the business had the best chance of getting. However his response was short and to the point. “I’ll just follow the money”, he said.

Follow the money. Simple yet obvious. Find out who actually has money to spend and what they intend to spend it on. Then you can focus on what you can do to help them spend it. If you are dealing with a business credit checking, common sense, industry gossip and the past histories of any individuals help. If you are dealing with consumers it’s a question of need to haves and nice to haves.

By following this money trail you can ensure that you don’t waste time on things that clearly are not going to work financially, especially in this climate. People can talk about projects and products that they are working on till the cows come home but unless there is money in the background somewhere there is little point in you as a business chasing them.

When I first asked that question I thought I knew how money worked. And I guess in terms of debits and credits and P&Ls and Balance Sheets I did. But good finance people realise that it works in many other ways as well, and understanding these and working them into our financial management processes is just as important as all those technical skills that we and our clients and employers take for granted.

Watching the outside world go by?

There was an interesting article in the weekend papers asking how many private investors had heard from their financial advisors during the stock market turmoil of the past week or so. Not many I would wager. Indeed it would be interesting to know how many advisors of any kind had been systematically reviewing the impact on their clients’ businesses of the recent economic and social developments.

One of the benefits of working with an external advisor, such as a part time FD, should be that they are able to bring information and perspectives that those who are working on or in their business full time don’t get. I frequently get asked by clients about what is happening in the world outside their business, and what changes they may need to make as a result.

Having said all of that, how do you manage a situation where the FTSE can go from 2% down on the day to 3% in a couple of hours? The big temptation is to sit tight, hope that it will all blow over, and that everything will turn out well in the end. Nonetheless it is difficult to balance wondering about the impact of current events with maintaining focus on the medium to long term goals of the business.

Based on recent events I have advised clients trading overseas that managing their currency exposure has become even more important, that the riots are a timely reminder to check insurance policies and cover levels, and that a thorough review of all clients and suppliers, including credit checking, would help to minimise any negative impact.

With the constant talk of deficits, cuts, debts and global imbalances, it is easy to become despondent and tread water waiting for better news to begin to come through. It is worth noting that many large corporates remain in a strong financial position.

However should financial Armageddon ultimately occur I suspect there is little anybody will be able to do about it. For advisors and managers alike it all comes down to managing what you can, being as good as you can, and keeping focussed on the bigger picture of what you are trying to do, whilst always of course looking for opportunities or dealing with the risks that present themselves in the short term.

Wanted – FDs with a vision

John Vincent, co-founder of Leon Restaurants  and head of Vasari Global, is frustrated by empty companies. In a recent blog in Management Today  he railed against zombie businesses that focus on share price with little or no concern for people and society.  He believes that companies need to have a sense of mission beyond the share price, or they won’t last.

I can relate to that.  There is nothing worse than a company that has no purpose other than to make money. Indeed it is clear that a business that pursues profit without any thought for the way that it does so is unlikely to be sustainable.

But hang on.  Apparently I am not supposed to think like that.  I am a finance director.  It seems I don’t get this vision thing.  I am a process guy who likes nothing better to wallow in the numbers and cut “unnecessary” costs.  That is apparently why FDs do not make good CEOs.

Balderdash.  Good FDs are good precisely because they do get this vision thing.  They can look beyond the numbers and appreciate the difference between cost and value.  They do understand how wealth is created. 

However they also know how easily it is destroyed.  Indeed there is an argument to say that some CEOs have too much vision and that a little focus on the numbers would not do them any harm at all.

The truth is that a good CEO is a good CEO regardless of his or her discipline.  They articulate the vision, support the processes, engender trust and ultimately create wealth.

Actually I do have a vision.  It is of a business that I have helped to know where it has been, know where it is going and know that it has enough fuel in the tank to get there. It may not be bright and fluffy, but it is reasonable and achievable, and has helped a number of CEO “visions” succeed.

FDs taking the centre stage – is yours up to it?

Yet another study has revealed that CFOs and FDs are now coming into their own. All right, it comes from the Chartered Association of Certified Accountants so maybe there is a hint of vested self interest, but even so, there is enough anecdotal evidence out there to suggest that the principles of sound financial management and good business practise are not mutually exclusive in the way that they seemed to be during the recent bubble years. At last we downtrodden finance folk are being given the chance to do what we do best, and save our businesses in the process.

But wait a minute what is this other sound? Desk being cleared and doors slamming shut behind you? Whisper it but some CFOs and FDs are now being “found out”, and that the qualities that made them adequate during the boom years are not suitable for the tough times that are now upon us. At a recent conference I attended, the Managing Director of a respected local business told of how, when faced with a downturn in business last year, he quickly realised that his FD was not up the task and as a result very quickly got himself a new one.

Studies show that 80% of the value of an FD comes from 20% of their time. Much of an FD’s time in many organisations is often spent on managing other functions, such as IT and HR which may not fit their skillsets, or indulging in internal politics. In situations like this, the question a value for money becomes more and more pertinent. If you are paying somebody a package in excess of £100k you would expect them to be performing at this time and showing their true worth. If they are not, it may be time to consider other options.

Another article you might be interested in:

Numbers guys you can count on
A proper company cannot function without a decent finance director at the helm, supervising, informing and warning, writes Luke Johnson.