From the March 5, 2004 print edition
This is the sixth in a series of eight articles on business transition issues.
The realization of a business owner’s goals and objectives are dependent on financial performance. Targeting and executing the right outcomes are essential in realizing positive financial results, corporately and personally. Peter Drucker was absolutely right when he said: “Unless a business happens to be in a market with little competition, excellence is required to maintain successful operations.”
A major dilemma is surfacing in emerging small to midsized businesses:
1. Entrepreneurs and managers are not keeping up with financial management processes and disciplined performance, which are required to deliver sustained success.
2. The marketplace is becoming more and more unforgiving.
Time to update financial management: Unfortunately, in too many small to midsized businesses, financial management has not come of age. Managers are still making too many financial and business decisions based on “looking in the rear-view mirror” rather than taking advantage of financial analysis supported by strategic thinking. There are so many good financial tools available that can be instrumental in helping a business achieve, or surpass, its financial goals.
A lot of good and valuable financial management knowledge is lying dormant outside the doors of needy businesses. The essence of management is predictability. The better the management processes, the more predictable the results. The same is true of financial management. A strategically focused financial management process supports achieving the results sought.
By a strategically focused process, I mean one that has been scrubbed, tweaked and modified to focus financial performance on the activities that will produce the results targeted in the business’ strategic plan. The budget and financial reporting must be in sync with the strategic plan. If this is not the case in your business, you may be making significant expenditures for the wrong goods and services as well as missing real profit opportunities.
What great companies do: A careful study of the most successfully managed companies reveals common financial management practices. Almost without exception they:
Create a sense of mission by clarifying what each work group is working toward.
Make it easy, and a part of the culture, for everyone to know their numbers. This involves taking the complexity out of knowing where the company, along with each of its profit centers, stands in its financial performance.
Develop a clear communication process, so the work of individuals as well as the work of the team as a whole can be clearly understood and accomplished in a timely manner.
Identify critical financial success factors, along with the appropriate mechanism to ensure the pursuit of excellence. Then deliver on schedule.
Ensure there is an ongoing improvement mentality, particularly aimed at cost improvement, systems improvement and the training of people operating those systems.
These are the functions the management team must understand and support to be effective in producing superior financial performance. And this is what separates the winners from the losers. The winners continue to look for the next thing they can improve to create predictable positive financial results.
Better the process, better the results: Each business has some form of a financial management process. The processes vary according to industry, size of the business, sophistication of the business technology, evolution of the business and its management, and certainly leadership. The better the process, the greater the predictability for the business owner to get to his desired end-point. Take a look at your financial management. Is it delivering the kind of results that gives you comfort for the future?
Hal Johnson has been CEO of eight companies and has authored two books on mentoring business performance. He is chairman and CEO of LeadershipONE, a business transition consulting firm. He may be reached at (916) 391-3042 or at [email protected].
© 2003 American City Business Journals Inc.