Financial Management Strategies: #1 – Expertise, Experience, Leadership

To be successful, all organizations both for profit and nonprofit, require sound financial management. Without it, the organization could not survive for very long, remain financially healthy, and expand into its markets. Financial management has several essential components that guide the acquisition, management, allocation, and financing of resources for successful growth. Every event in the organization incurs some costs. For profit-oriented organizations, revenue generation also requires expenses. For nonprofit organizations, dependence on donations or grants raises the level of sound financial management to a high priority. They are stewards of donors similar to the way for profit firms are accountable to stockholders. What is the most effective means of managing the finances of the organization for insuring the greatest control over invested capital toward reaching its mission and goals? What are the required components that promote healthy financial management?

This article addresses one major management component that acts as a foundation for other critical parts. Among the most often-missed financial management component is the manager. The finance manager informs the organization of the importance it places on financial management. First, financial management requires expertise. If expertise or experience does not rise to the level for addressing the challenges and issues the organization faces with its finances, proper oversight would be elusive and missing. Conversely, vesting the appropriate level of management oversight to the manager insures successful business management. Business management must be tied directly to financial management.

Managerial Experience and Expertise

Managerial expertise in financial and accounting matters establishes the level of priority and importance to the firm’s financial governance. The degree of managerial expertise will reflect the span and scope of necessary oversight. For example, a lower level of expertise will focus narrowly, that is, only on the accounting function. Such a focus will fail to recognize the reach of financial management within the organization. Furthermore, other functional managers will also fail to view its importance and will brush off financial management as having low priority. Consequently, such a low-level focus may disregard the strategic importance of financial management for the entire organization when concentration becomes relegated only to accounting.

Additionally, a low level of experience and expertise assigned to financial management oversight will fail to roll out control mechanisms to other functions within the organization. This will result in other functions not recognizing the value of sound financial policy and practices and thereby resist them to the detriment of the business.

Span of Control and Authority

A complementary component to expertise and experience is span of control and authority assigned to the finance manager. The business owner, chief executive officer, or board of directors must insure that the finance manager not only has financial expertise and experience but also appropriate span of authority. This is needful for being able to roll out financial management policies and practices throughout the entire organization. If the organization does not vest sufficient authority for financial oversight, the consequences could be competition for financial resources and a disruptive environment rather than all organizational functions working together toward the same mission and goals. Marketing or operations could ignore the finance manager as having an insufficient voice in their financial matters. Consequently, unhealthy competition for financial resources could intensify for building individual kingdoms within the firm, and capital expenditures could spiral out of control.

To insure that such a scenario does not occur, the CEO or board of directors must insure that the finance manager meets several criteria:

• Possessing expertise and experience in financial management and accounting for guidance in the financial affairs of the organization. This insures appropriate oversight over financial performance and interpretation of general accepted accounting principles.
  
  
• Valuing sound policies and practices for guiding the organization. This provides visibility and acknowledgement of proper governance of financial matters.
  
  
• The experience level in the financial discipline to exhibit leadership with executive management. This insures an equal standing and voice in executive decision-making.
  
  
• Vesting authority in the finance manager for implementing appropriate financial practices throughout the organization,
  
  
• The capacity to address the challenges to financial management issues and to mediate them to the benefit of all functions and the entire organization. Financial management is a collaborative effort and requires leadership from all managers but most importantly from the one whose expertise and experience drives the money train.
  
  
• The leadership to oversee expenditure targets, resources allocation, strategic management, and related matters. The finance manager leads by example not only by being the champion of sound financial practices but also by practicing them himself.
  
  
• An entrepreneurial attitude that reflects ownership. Entrepreneurship and ownership go hand in hand.
  
  
• Vision that drives action and results. Visualizes the whole picture without sacrificing the details.

Conclusion: Leadership and Sound Financial Management

Steven Bragg emphasizes several of these criteria in writing, “…it is critical to have the complete support of the top management team” [1] for the successful implementation of best practices. Strong leadership, experience and expertise, and placing value on best practices must be well ingrained in the finance manager for financial management to be successful. To the degree any one of these essentials are reduced or missing, the business will fail to value sound financial management. When such importance becomes reduced, the firm will suffer substantial setbacks in its growth, market presence, and mission and goal attainment.

[1] Bragg, Steven, Accounting Best Practices (Hoboken, NJ: 2004), p. 13.