Strategic Financial Management Includes An Accountant and A Financier

Finance Is Not A Favorite Topic Of Business Owners

We typically find the Financial section of this website to be one of the least favorite of the four core functions within a Company, yet it is so important, and becoming more important everyday with the tightening credit situation.

That was no real surprise to me that 80% of all business owners are not proficient.  I would guess it is much higher than that, since we have seen the same numbers and maybe higher in our acquisition work.  80%, that is a big number, yet many people believe they understand their financial condition, the reality is, they don't. 

The reason for the mis-understanding is that by going to an Accountant, an Owner feels that their Financials are covered, and they are satisfied with their financial position. Most are content until they start running out of money....and hopefully by then it's not too late. 

Why Accountants are Important

The reality is, that an Accountant typically works with WHAT YOUR COMPANY HAS ALREADY DONE and the TAX CONSEQUANCES OF WHAT YOUR COMPANY HAS ALREADY DONE.  

We don't want to upset our Accountant friends either, but just based on our experience, this is what we are seeing in the marketplace.  Most owners that our group has interviewed as acquisition candidates have very little knowledge about their numbers and don’t seem to be concerned that they don’t know. 

Most won’t even approach the topic unless their banker has required them to see a consultant who specializes in Finance. 

The POWER4Finance module is utilized to create a documented FINANCIAL SYSTEM for your Company, to help the Owner and the employees of a Company, understand the FINANCIAL impacts of decisions on the company. 

Finance can be very confusing, often misleading.  Our group does not practice Financial Planning, we offer Finance Forecasting,looking ahead in your business and working with you to understand Finance and the importance of financial well being within your company. 

History vs. Future

The difference between Accounting and Finance is the fact that Finance looks to the Future while Accountants work with the history.

   ACCOUNTANTS = HISTORY 

FINANCE EXPERTS = FUTURE  

The definition above is not at all a statement that you don't need an Accountant, they fill a critical roll in your Company, but most are not worried about what you are going to do in the future or looking ahead. 

A "Dream Team" in Finance would include BOTH and Accountant and a Financier.

Finance and Meteorology?

An Accountant has to make the pennies count and equal out, a Finance expert is a forecaster, looking to the future. 

The process a Financier uses can be compared to the process that a Meteorologist uses to create a weather forecast. 

Meteorologists look at:

• trends

• current conditions

• history

• computer models

• what is average or typical

From these factors they make a forecast of what the weather is going to be in the future. Meteorologist forecast the conditions in different time lines: 

• the current conditions

• conditions tomorrow

• conditions next week

• conditions next month

So How Does That Relate To Finance?

They are right on most of the time, but the weather can be completely different on factors that were unforeseen or the data didn't exist at the time of the forecast but they are usually pretty close. 

A Finance expert works similarly to a Meteorologist.  They look at:

• trends in your business

• current market conditions

• and future market conditions

• history of your company

• industry averages

A Financier uses the information to create a forecast of the Financial health and cash flow of your Company

• currently

• this month

• this quarter

• this year

• next year 

• 3-5 years out

The forecast will create a road map of where your Company is today, and where it likely will be in the future based on the factors listed above. 

Don't Have to Be Exact, Just Be Close...

Financial forecasting is not an exact science, it takes experience, knowledge and the history that your Accountant provides to you, but financial expertise can be learned. 

By montitoring your financial position, you will be able to make adjustments and get closer and closer to being accurate over time.  Want to learn how?