How Can Strategic Finance Help My Business?
Often a prospective client will ask how I can help him or her reduce risk and increase sustainable cash flow if I don’t know the ins and outs of their particular type of business. It’s a good question, but focuses on the wrong issues. Business is business no matter what you make or sell, and financial principles apply to each and every one of them.
When most firms hire a CPA they are looking primarily for one who comes with good recommendations. An excellent CPA doesn’t have to know how your industry works in order to prepare your financial statements or taxes. How about your bookkeeper, how do you find that person? Probably the same issues that apply to the CPA apply to the bookkeeper.
If you look for an inventory specialist don’t you want the best whether they know your business or not? Inventory is – basically – inventory. Yes, wine inventory is different from eggs and eggs are different from specialty composite materials but at the end of the day it is all inventories. The age of inventory and the accounting for inventory can be different but it does not change the fact that it shows up as inventory dollars on the balance sheet!
What about the investment banker? Do you want to work with someone who is considered an expert in the field of selling companies doing the greatest volume or would you want a small boutique that only sells your type of firm? One of the greatest investment bankers, Bruce Wasserstein, opined that industry experts can be limiting because, “tactical and strategic considerations know no industry boundary.”
Finance was at the center stage of the 2009 mega-recession yet firms still don’t apply strategic finances to their business. They all seem to know that cash is “king” but that has really always been true. Business owners seldom hear from their specialist consultants how important cash flow is to the firm.
When did the last industry expert talk to you about how important return on assets (ROA) is to the owner and firm? How many of your experts talked to you about cash conversion cycle (CCC) or net trade cycle? How about your cost of capital (COC) and why ROA has to exceed the COC in order to increase your equity value?
I could go on, but the answer is most often that no one has said anything about finance to you, let alone held you accountable for accomplishing strategic financial objectives. Strategic finance knows no boundary within industry firms or between industries. Business is business and finance is finance no matter what you sell.