The Role of a CFO: motivating people, managing assets and hedging risks - страница 3

Few would dispute the notion that a commercial enterprise must strive for financial independence in the foreseeable future. Even in the case of esteemed yet loss-making companies, particularly in the technology sector, eventual profitability and steady, sustainable growth over a predictable period are pivotal factors in determining a company’s value. And achieving this is inconceivable without competent financial management.

During the first two decades of market reforms, Russian enterprises’ senior management displayed little interest in establishing effective financial management practices. Similarly, most entrepreneurs remained indifferent due to either shortsightedness or tacit approval from their enterprise’s leadership. It sounds unbelievable, doesn’t it? Yet, that’s precisely how it was, and several factors contributed to this apathy.

Why bother constructing a transparent automated internal control system when tax authorities could effortlessly uncover illegal tax optimization methods through it? Why adopt long-term budgeting and forecasting systems when top-managers found it expedient to base decisions on situational assessments, believing that high results and substantial profits were a result of their foresight, while failures were attributed to the inability to plan effectively amidst Russian instability? Why overhaul the mindset and motivation of midlevel managers to adopt a customer-oriented, competitive service approach when, for the past two decades, the prevailing approach had sufficed, and retrained managers might simply leave to establish competing businesses?

So, why is it unfathomable to envisage building a business without financial management? Even in companies lacking a designated financial manager, fund movement is regulated, albeit perhaps based on common sense rather than specialist intervention. Failure to manage finances can swiftly precipitate business collapse: «sudden» cash shortages, employee demotivation due to non-payment of obligations, counterparties refusing cooperation due to payment defaults, fines and tax authority audits, fraud, and managerial errors in a competitive environment.

You may wonder how many companies and entrepreneurs have succeeded in building prosperous businesses without regular financial management. Here, the infamous survivorship bias comes into play. While we’re familiar with success stories, we often overlook the percentage of new businesses that perish en route to achieving their objectives, as well as the factors influencing their survival. Experienced investment managers recognize that in a burgeoning market, anyone can turn a profit, but in a stagnant or declining market, only a select few prevail. Unlike the «fat years» of explosive growth when mediocre managers could easily run companies, in times of crisis and stagnation business survival hinges on well-prepared processes, managerial acumen, and entrepreneurial skill. This is within reach of only a privileged few – the most successful and fortunate companies. Nevertheless, effective organizational management, comprising technical tools alongside the right corporate culture – data-driven planning, process organization, technology application and automation, team selection, a strategic decision-making approach, and motivation – are the cornerstones of regular management.