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Sunday, 4 October 2015

Daunted by All That Financial Stuff? It’s Fattening the Pig That Matters!

A recent speaker at my Vistage CEO peer group meeting offered the following neat little philosophical aphorism:

     "You can't fatten a pig by weighing it"

It was greeted with a lot of laughter and people (like me) jotting it down for future use and, lo and behold, it has come to mind today.

I have just returned from a Vistage conference where the keynote address was on "Finance for CEOs"

A great deal of the day was devoted, and rightly so, to the need for business leaders to be fully involved and knowledgeable in the finances of their businesses.

The speaker detailed the really important factors that impact on the success or otherwise of any business and particularly on those that hide coyly in the undergrowth.  These are the ones that can cause the maximum disruption if they are not tackled quickly and effectively.

However on the downside, not every leader rises to the top of the business by the finance route. Other disciplines like sales, marketing, operations, technology and even HR are just as likely to feature on the leader's CV.

The consequence of this then is an understanding of the importance of the finances of the business but a deep-seated and worrying realisation that they don't really understand all the implications.  

The consequence is that the function defaults to the CFO or Finance Director to produce the statutory information in the accepted format of profit and loss account, balance sheet and cash flow forecast.

All well and good and the good FD will present the information in easily understood reports, at least monthly, on time (no more that five working days after month end) and totally accurate. Additionally he/she will analyse the figures and offer advice to the leader as to any action that may be required.

Let's face it. That is an ideal situation but not a universal one.

The consequences of poor information allied to inadequate and often now misleading advice can be catastrophic so leaders need to have some sort of a fallback to ensure that the business finances are clean and accurate.

All of this is about historical financial evidence, how the business has been doing and not about how it us going to. It is weighing the pig, in facet.

A good idea because it is difficult to know where the business is going if you don't know the starting point.

It all devolves on those fascinating little acronyms, the KPIs or Key Performance Indicators and give them the credit. They can be very valuable in monitoring past and to some extent present performance.

However not many of them contribute to the fattening of the pig and that is in the province of the leader.  The problem is then that we have some leaders with inadequate financial expertise but with a concurrent need to plan the growth of the business based on current financial values.

The fact and it may be somewhat unsalable is that business leaders must have some form of backup, perhaps some basic training or a trusted contact, who will assist in explaining the validity of the figures.

That needs to cover all the necessary aspects of the finances of the business, things that leaders MUST know and understand.

After that it's fattening of the pig time and that is where the leader excels. It isn't necessarily financially based because there has to be at least initially a good deal of blue sky and green field thinking.

When it is all finished, polished and ready for presentation then you can let the finance gurus loose on it.  They may well find (and probably will) all the pitfalls in the plan but they need to have their fun as well

Remember that it's the fat pig that fetches the best price at market.

You can download my book "Leading to Success" from Amazon
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