There is a crying need for organisations to be financially intelligent. For sustainable growth financial intelligence must percolate across all levels within the organisation.
It is an established fact that financial mis-management is the single biggest cause of business failures the world over.
Let me today dwell upon why this happens and how to ensure that your organisation does not fall victim to it.
Why do so many business suffer on account of financial mis-management
This question puzzles many – that despite the best of professionals working in the finance department, how is it that they still succumb to the malaise of financial mis-management.
Let me tell you a well-hidden secret: Very little finance management happens in the finance department. Much of what happens there is accounting. Finance management or mis-management is happening 24/7 in every action of every individual. By the time the so-called finance person comes into the picture, the good or the damage has already been done.
How to create financially intelligent organisations
When business leaders and entrepreneurs understand the importance of good finance management and the price organisations pay on account of financial mis-management, they are naturally curious to know what therefore is good finance management so that they can start practising it.
While on the one hand understanding good finance management can take years to learn, I have condensed its essence in the form of two rules that I call as the Two Golden Rules of Good Finance Management.
(Today is not the time to discuss these two rules, which I will do another day.)
When I explain these rules, which sound very easy to listen to, the reaction usually is, “This is so simple. Don’t corporations already know this?”
My answer is, well, many don’t. But even those who do, the implementation of these rules pre-supposes the generation of relevant data, which often does not happen. If information is generated, it is not timely. If it is timely, it does not reach the right people. If it does reach, the people are not trained to read, understand and interpret the data and take necessary action. It is such a deep-rooted problem, that it is a matter of time that organisations would suffer its consequences.
So where does the solution lie?
If one does not want to become a victim of bad financial management, the only solution in my opinion is to become a financially intelligent organisation.
I would recommend that organisations ensure
- that robust accounting systems are in place and relevant data is generated on time
- that customised MIS reports are designed and generated at appropriate frequency
- that the reports reach the individuals concerned with that activity
- that financial education is imparted across the organisation, from the senior-most management to the employees on the lowest rung
- that the message gets communicated at every level that financial management is each person’s responsibility.
It is so important for organisations to understand that profit that a business generates is the result of financially intelligent actions/decisions collectively taken by everybody within the organisation.