The Forgotten Discipline of Finance -- 3 Keys to Thriving in Good Times and Bad

David Worrell
Fri, 05 Sep 2014 00:00:00 +0000

The Great Recession put a lot of companies out of business. Yet others survived unscathed. Why? Having guided dozens of clients through those tough times, I believe that the survivors all relied on the largely forgotten discipline of finance.

Sure, you have a clear marketing process, a sales process and an operational process ... do you have a disciplined finance process too?

In every business, a disciplined finance process should include: (1) A commitment to accurate accounting; (2) Comparing actual performance to a detailed financial plan; and (3) Finance expertise to interpret results and guide sound management decisions.

If these three simple things can get you through a five year recession, imagine what they can do in good times. Ready to implement financial discipline techniques in your company? Here’s what you need to know:

1. Take accounting seriously.

Every business owner wants to run a profitable business but few entrepreneurs dedicate enough time to measuring actual results. The only way to do this is to have a dedicated accounting function. Just as sales can’t happen without paying attention to prospects, good financial decisions cannot happen without paying attention to the numbers. It might seem like you can “get along” without accurate accounting during the good times, but it is impossible to navigate lean months without clear financial records.

2. Use financial reports to drive planning and forecasting.

Getting clean records is just the first step. Accurate financial statements are worthless if the information is not used to steer the company.

Knowing what the results mean is so much more important than just knowing what the results are. A disciplined finance function is one that dives deeper into the numbers to measure key performance indicators (KPIs) and plan for the future. Successful companies move beyond simple reporting to develop business dashboards and forecasts.

3. Find an experienced copilot.

Every CEO should have a CFO or finance expert in his pocket – one who is skilled in forecasting, budgeting, setting prices, working with banks, and generally grappling with the complexities of financial results. (This is generally not a bookkeeper, controller, CPA or banker.) It takes a specific skill set to put financial results into a business context and drive complex decisions. The right person will keep the business focused on metrics that drive healthy growth — and navigate around catastrophe.

Don’t Wait for a Recession

Even without a Great Recession, external forces affect every business: weather, competition, labor issues, and other unexpected events. How you deal with the “unexpected” is fundamental to whether you thrive in the face of adversity. So many businesses simply do not have the financial discipline to work through a crisis and come out bigger and better. Do you?

Is your business financially disciplined? Are you struggling with long-term planning or just getting through the current unknowns? Take the time and effort to get your organization to the next level of growth by building a mature financial function. Creating a sound finance process will support your business for years to come — in good times and bad.