Give the Financial Director a gun…

Starting_gunBy Chris Thomason

Not to shoot anyone with, but to start the company’s race for growth.

Why, you may ask, should the FD be the one to start the race? Because he (or she) is the person who most understands the financial state of the business – what needs to be done, and when it must be done by.

Consider this. R3, the insolvency industry trade body, reports there are 160,000 zombie companies currently operating in the UK. Zombies are those companies struggling to repay the interest they owe on their borrowings, never mind paying down the capital. And they are only surviving because of the abnormally low interest rates on their loans too.

Considering there are around 1.6 million operating businesses in the UK, zombie companies account for approximately one in ten of UK businesses, and they range from FTSE250 companies all the way down. Witness HMV, Jessops, Comet and Blockbuster, four UK high-street brands that have entered administration in the first month of this year alone.

The larger the company you work for, then the greater the sense of invincibility of existence. The company was operating successfully for many years before you joined, and it will likely continue for many years after you leave. The odds are stacked in your favour of your company continuing to exist. But beware – is your company one of those 160,000 zombie companies? If it was, wold you know?

Very few people outside of the executive team know when a company is close to failing, and there’s good reason for this. The executive (quite rightly) don’t want to alarm people. The management structure right across the business will have a number of ‘urgent’ programmes in place to develop the business that will seem like business-as-usual activities to the staff. It can be hard sometimes to be aware of the true state of a business, hence the frequent degree of shock shown by staff when the demise actually occurs.

Many projects that a business is working on will always be considered to deliver value in the long run – otherwise they would be stopped. But will the company have enough time to see the value delivered, especially when many projects overrun on time and budget and under-deliver on promise.

Even in good economic times, every project should be measured by how well it will grow the business, but in the turbulent times of today, that growth needs to be measured as value added on a quarter-by-quarter basis. This is why the Financial Director needs a gun.

There are limited resources available in any business and every project should be measured on the degree to which it will give value over the coming quarters. There will always be a need for the longer-term more strategic projects, but there must be a much greater focus on short-term growth.

The split may vary for different companies across different industries, but a 60/30/10 split may seem typical where there is 60% of resources being focussed on things which will deliver value in the next two quarters, 10% of resources focussed on long-term projects while the balance of effort is benefitting the mid-term.

For the short-term, the FD needs to be ruthless in ensuring every project delivers short-term gold, and not short-term garbage. So in the spirit of going for gold, let the FD apply some financial rigour to the justification of the myriad of short-term projects that exists in most businesses. Perhaps only those that can deliver the greatest value should be allowed to proceed. An additional benefit is that the FD is emotionally detached from the project itself, and can focus objectively on the growth it will deliver to the business.

So give the Financial Director their gun and let them line all the potential projects starters up and loudly proclaim ‘On your marks. Get set. Grow!’

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