Managing Your Cash Flow

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Where’s your focus?

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“Consolidation together with increasing regulation has put a huge amount of pressure on our company. This can stunt growth and focus management in short term cost efficiencies rather than longer-term strategic planning.”

It’s a perennial problem for FDs: how to balance the day-to-day pressures on the finance function with medium term targets and long-term strategy. This FD certainly isn’t alone. Time and again we hear FDs from quoted companies complaining about pressure from investors and the market to hit quarterly or biannual financial targets, for example. And in smaller and private companies, while investors and regulators are no less demanding, the FD often has the additional burden of cashflow to consider. Paying next week’s wages is always more important than next year’s expansion.

In many businesses – and even sectors – this pressure hurts long-term planning. Take banking. Recently KPMG published its analysis of what was still going wrong for British banks – and how they might sure it.

They identified a scary number of problems. (You could call them opportunities, of course…) But they resolved down to three areas: regulation, technology and culture. And in each case, management focus has been artificially drawn to the short term.

Regulation, for example, isn’t stable. Banks are facing new regulations at regular intervals, so management has no incentive to plan long term because those plans might be scuppered by changing rules. Worse, the latest round of change takes time to adapt to – further drawing the focus to the next quarter or the next year.

Banks’ technology has become too complex to fix. Rather than rip out old, outdated system and get with the cloud, most banks are stuck laying new systems on top of an already stratified and often pre-historic platform. If a new regulation, product or consumer channel needs to be hooked up, that’s the focus – not unpicking everything to deliver a better core system in five years. It’s a picture many large business FDs – and even some in smaller companies locked into legacy applications – would recognise.

Culture? Well, that’s the most challenging one of all. Banks aren’t alone here, either. Business generally has lost a lot of reputation since the recession, with issues around tax, pricing and employment practices that leave the public (and their staff) cold. Want to fix the culture? Create a business that wins back the people? That’s tricky when rivals will undercut, when staff will take time to think different, when the very infrastructure of the business world is hooked on the old ways of doing things.

So what should the smart FD do? Well, the finance chiefs who seem to get it right suggest three things.

First, set the right targets. The modern FD might not like the label (it’s obviously well short of the breadth of the role), but keeping score sites at the heart of the job. By setting long term targets – and creating milestones towards them that enable fellow management and employees to see progress towards them – the finance function can steer behaviour in the right direction.

Second, carve out time to think strategically. Everyone knows this; too few people do it. But a management off-site once a year to describe what the company is and how it will look in three years time is incredibly important. Tip: apply Alistair Campbell’s comms approach. In short: set an objective, a strategy and tactics to deliver your goals. And, he points out, “the best strategies can be communicated in a word, a phrase, a paragraph, a page, a speech, and a book.” Describe your company strategy with each of those.

Finally, delegate and empower. The FD who prompted this post is feeling stuck in a series of short-term problems. But it’s up to FDs and CEOs and their leadership colleagues to keep out of the weeds if humanly possible. Delegation can be hard – especially for companies without the sheer numbers of seniority in the finance function to ensure jobs get done properly. But if the FD is never able to attend to the big picture, it will never be big enough…

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