The Role of a CFO: motivating people, managing assets and hedging risks. Денис ДубовцевЧитать онлайн книгу.
reporting, which, in turn, is essential for decision-making. Additionally, information from the management accounting system is used in preparing financial statements required for tax reporting and interaction with government authorities. Indeed, this is a significant but no longer the primary activity of financial professionals – as discussed in chapters on people management and motivation, working with shareholders and investors, and, of course, the chapter on decision support.
When talking about financial management, I primarily mean the efficient usage of one company’s resources through employee management and their motivation towards achieving common goals. This forms the core theme of the book, reflected in the title’s emphasis on «people» over «money». I firmly believe that employees are paramount, placing them above financial resources. Consequently, the theme of personnel management and motivation serves as the foundation for each chapter.
Asset management and risk controls are equally critical themes addressed in the book, permeating all aspects of a financial leader’s responsibilities. Given that finances constitute a company’s primary assets, risk control and threat prevention take precedence for financial directors. While the importance of both areas hardly needs affirmation, recent events like the COVID-19 pandemic, military conflicts, and sanctions against whole countries and specific businesses have underscored the superiority of these responsibilities, drawing the attention of company owners, boards of directors, executives, and financial professionals.
Here, when I refer to «financial professionals» I’m encompassing not only analysts and economists but also accounting staff, internal controls, ERP developers, methodologists, tax specialists, HR professionals, contract management specialists, and those involved in external document flow management, as well as lawyers. This broad spectrum of professionals provides internal service support for business operations. The exception, perhaps, would be network engineers and other IT professionals, although historically in Europe and the United States oversight of the IT department has often fallen under the CFO’s purview.
In this book, the financial department is viewed as a financial-operational unit facilitating the execution of the majority of functions related to operational digital infrastructure, decision support, organization of data collection, as well as preparation, and delivery of various reports through BI infrastructure, document management, liquidity management, internal controls, risk management, and much more.
While some may label this as the back office, I find such a definition overlooks contemporary business demands for flexibility, speed, and result-oriented motivation. My aim is to provide competitive and qualitative internal and external service functions necessary for the successful and most comfortable conduct of business and the support of commercial operations.
Therefore, the internal financial-operational service (client-centric, understanding business processes, oriented toward quality results) I establish in each company focuses not only on transaction processing, report preparation, and backing up the commercial function, but also on strategically ensuring the continuous functioning of the business, supporting its stable and predictable development.
Many companies lack a strategic approach to operations and finance management, as well as a service-oriented, modern, harmonious focus on comprehensive development and consideration of the interests of all parties while remaining customer-oriented. By prioritizing these goals, you can plan the transition to a new stage of personal and company development, identifying the essentials in the organization’s activities, and preparing for the future accordingly. This book will assist you in meeting these challenges.
Introduction
Why is financial management necessary? I open this book with a seemingly paradoxical question. While the answer may appear self-evident, in practice it’s not always so.
I’ve encountered and continue to meet senior managers and entrepreneurs who genuinely believe that financial management isn’t crucial for building a successful company. This perspective is flawed. Many operate under the misconception that finding the right idea, crafting a business model, negotiating with counterparts and assembling an operational team negate the need for managing finances, at least during the initial years of a company’s existence and, often, not even in the first decade.
I’m convinced that this mindset is a relic of the post-Soviet management model. Those familiar with that bureaucratic system became exhausted by planning but never truly grasped the intricacies of sound financial calculation and organized budgeting. In that environment, where competition was scarce and profitability often obscured financial scrutiny, there was little impetus for implementing robust financial management: competition was absent, and the profitability was such that money was not counted. Additionally, the explosive economic growth and lack of competition in various sectors were periodically disrupted by crises and currency devaluations. The absence of crisis management experience hindered the development of economic planning habits and systematic financial management for most economists.
During the first two decades of Russia’s market economy development, profitability, often achieved through unofficial financial schemes and legal structures for tax optimization, served as the primary yardstick for financial management effectiveness. The ability to negotiate financing with banks and other financial institutions was deemed a critical skill for financial managers. Meanwhile, factors like the quality and depth of management accounting and reporting, effective liquidity management, internal process organization and automation, and the implementation of transparent internal control systems – parameters widely accepted as key indicators of financial director effectiveness in Europe and North America – were deemed inconsequential, and sometimes even detrimental, to the businesses grown on the former Soviet grounds.
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