 Start the Journey
Many organizations lack solid financial management practices due to a single focus on accounting only. You need to go beyond traditional accounting and have some basic level of finance to drive value going forward.
| Establishing a basic level of finance is 80% of the battle on your road to creating value for your stakeholders. |
Some Minimum Criteria
In order to have a solid level of finance in place, you may need to consider:
- Financial Performance Evaluation: A set
of standard procedures to monitor the financial performance of your organization,
including economic based measurements.
- Capital Budgeting: A process for
evaluating how to invest in long-term assets or projects.
- Cash Flow Management: Forecasting
procedures to better manage your cash inflows and outflows.
- Working Capital Management: A set of
guidelines to direct the financing of your assets.
- Risk Management: Identifying risks,
measuring the financial impact on your business, and implementing procedures to reduce
significant risks.
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Contrast Between Accounting and Finance
To better understand what basic finance is about in relation to accounting, we can summarize some important differences:
Accounting |
Finance |
| Historical - Looks Back |
Predictive - Looks Ahead |
| Oversight and "Cop Like" |
Service Oriented |
| Narrow Focus |
Broader Focus |
| Financial Only |
Financial and Non-Financial |
| Short Term Focus |
Long Term Focus |
| Advocates Profits |
Advocates Value |
| Control Cost by Accounts |
Control Cost by Process |
| Rules and Compliance |
Free From Rules |
These dramatic differences point to the fact that people who are engaged in "finance" as opposed to "accounting" will be much more value-added to the organization. And this is critical for a very simple reason - you cannot increase the value of an organization unless you are doing Finance (not just accounting).
| What's in it for me? A much better way of using financial information to grow and increase the value of your business. Better decision making and planning for the future. More mature financial practices. Less emphasis on just processing transactions every month and more emphasis on integrating financial information into operational decisions. |
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