Thursday, March 7, 2013

Small Business Financial Leadership

Experience and Expertise for Financial Management

The black belt ranking goes to the person who rise to the level at which he or she masters certain skills, techniques, and acumen.  The same holds true in any professional discipline in which a person wishes to advance.  This principle is particularly true for a Chief Financial Officer (CFO) of a company.  This role's mastery of the numbers must be in a wide variety of areas.  For this reason, many CFOs may be Certified Pubic Accountants (CPA).  Much like the black belt, the CFO must pass certain tests for skill level, knowledge, accounting and auditing techniques, and applied wisdom. This level of financial management is a necessary ingredient for a company's success.  This is not to say that all companies require a full time CPA.  That may not be financially possible for start up and ongoing small businesses.  However, not having the financial capability to have a CPA at the business financial management helm does not dismiss the priority of finance in a company and the expertise for its oversight.

Managerial expertise in financial and accounting matters establishes the level of priority and importance to the firm’s financial governance. The degree of managerial expertise will decide the span and scope of necessary oversight. For example, a lower level of expertise will focus narrowly, that is, only on the accounting or related function. Such focus fails to recognize the reach of financial management within the organization. Furthermore, other functional managers will also fail to view its importance and will brush off financial management as having low priority. Consequently, such a lower level focus as accounting or bookkeeping may disregard the strategic importance of financial management for the entire organization.

Additionally, a low level of experience and expertise assigned to financial management oversight will fail to roll out control mechanisms to other functions within the organization. This will result in other functions not recognizing the value of sound financial policy and practices and thereby resist them to the detriment of the business.

Breadth and Scope of Financial Management

A complementary component to expertise and experience is management span or scope. The business owner, chief executive officer, or board of directors must insure that the finance manager not only has financial expertise and experience but also appropriate span of management. This is needful for being able to roll out financial management policies and practices throughout the entire organization.

If the organization does not vest sufficient authority for financial oversight, the consequences could be competition for financial resources and a disruptive environment rather than all organizational functions working together toward the same mission and goals. Marketing or operations could ignore the finance manager as having an insufficient voice in their financial matters. Consequently, unhealthy competition for financial resources could intensify for building individual kingdoms within the firm, and capital expenditures could spiral out of control.

Proper leadership in financial matters requires appropriate expertise in both strategic breadth and scope.  Having such available whether internally or as an outsourced role brings a sense of safety for mitigating risks and bringing to the company the accuracy in the numbers necessary for informed decisions.  It also provides greater foresight for the future.  A small company needs to be on top of the markets to succeed in the them.  For such a company to get ahead of its financial resources in its market launches can spell a quick demise or lead to wasteful resources with little means of measuring return from the resources applied to market penetration.

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