The health and well-being of the organization is the number-one priority of the small and emerging business owner. Leadership must focus on both the operational and the nonoperational (back-office) aspects of the business to keep the organization healthy. One of the greatest challenges for any business leader is balancing time and resources between front-line and back-office issues. Typically, the small and emerging business owner is, because of the life cycle of the enterprise, more oriented toward operations. Identifying and dealing with nonoperational issues, pecifically the finance function, can be a particular problem in this phase of business development.
Many small and emerging business owners feel that it takes a certain level of experience to address the finance function properly. These owners can be proactive in maintaining a healthy finance area without having to be finance/accounting experts. The best place to start is with a positive attitude and two key realizations. First and foremost, they must appreciate the finance function—knowing what it is and how it will help the business. Second, they must recognize that they exist within a continuum of finance knowledge. No business owner knows everything there is to know about finance. The same goes for the other extreme—no business owner is totally devoid of knowledge. The fact that a viable business has been started in the first place implies that there is fiscal value in the enterprise (i.e., the enterprise yields benefits that exceed the amount of resources used). The business owner has already made decisions with a fiscal grounding—usually attributed to instinct. The danger is, however, taking comfort in the belief that the small amount of knowledge accumulated in the finance area is sufficient to run the business indefinitely. Business owners can never have enough knowledge to deal with every challenge the enterprise will face. They must recognize this fact as they mature and delegate duties and responsibilities.
The need to strategize becomes logical as business owners become aware of this continuum of knowledge. Recognizing and recording business needs and acknowledging the organization’s capacity to meet those needs will help business owners approach the finance area, either for the first time or to improve it.
There is no one way to develop a finance strategy. Fraught with subjectivity, this task has numerous dependencies and variables—elements that change and evolve as the business grows. A further complication lies in the different strategies needed for small and emerging, midsize, and large businesses. The differences lie in the demographics of management and the life cycle (level of maturity) of the business:
- Small and emerging businesses. In such organizations, business owners typically wear many hats—operations, finance, human resources, and so on. Staff is typically small, and business owners must rely on their own instincts to make operational and nonoperational decisions. The lack of finance expertise may put the organization at risk, as sound decision making requires multidimensional thinking. When the business is in its infant stage, it often lacks overall infrastructure, particularly in the finance area (concrete components). The need for soft components of the finance function is less a priority as the urgency to grow and yield cash is great.
- Midsize businesses. More stable than their smaller or younger brethren, these businesses typically have dedicated finance staff focusing exclusively on finance issues. The finance area usually is good at accumulating historical data but not as adroit at being forward looking. Infrastructure exists, though it may or may not be adequate. The business itself is typically stable enough to begin looking ahead at opportunities to grow or threats it wants to avoid. Addressing hard components of the finance function may take the form of continuous improvement as infrastructure may already have been conceptualized and implemented. Soft components of the finance function begin to be more of a priority as the business has the luxury of setting its own course.
- Large businesses. These organizations have ample resources to dedicate to
the finance area. Headed by seasoned, sophisticated executives, these organizations have the manpower and experience to handle major business issues. Improvements in infrastructure are addressed on an ongoing basis and set the stage for future business initiatives. The focus in these businesses is on the soft components of the finance function. A premium is placed on the finance function’s ability to set policy and initiate strategies that will lead the organization in a prosperous direction, resulting in increased value for stakeholders.
Developing a finance strategy can be intimidating for the small and emerging business owner. When beginning the process of strategy development, these questions must be asked:
- How long will it take? If the enterprise is examining the finance function for the first time, it may take weeks or months to construct a sound finance strategy on which everyone agrees. Once a consensus is reached, it may take another period of months to put the strategy in motion.
- Will it endure? Once the finance strategy is codified and put in place, it will
take on a life of its own. If done properly, this process becomes part of the corporate culture. Particular strategies will come and go as the business evolves; however, the process by which strategies are developed and maintained must be embraced by business owners/executives.
- Once complete, is it immutable? Nothing in the business world is certain. The finance strategy must become a living organism within the organization that changes and evolves with the business. The only thing more damaging than not having a finance strategy is clinging to one that is no longer relevant.
- How hard is it to maintain? Maintenance of the finance strategy is a function of the myriad of issues that affect the business. The finance function must be the basis of all aspects of operations. Maintaining the finance strategy depends on the changing needs of the organization, which depend on the business environment and overall strategy. If the industry in which the organization operates changes frequently, maintenance may be an ongoing process, while maintenance in a stable industry may not be.
- How will the strategy be formed? Like any other challenge in the business, careful research and determination will be two key aspects of strategy development and implementation. Uncovering all current and prospective finance issues is the logical starting point. Subinitiatives then can be developed that put the overall strategy in motion. The key will be identifying and arranging all issues in a way that well-informed, practical decisions can be made.
Evolution
The finance function must evolve and change with the organization. Because most businesses are in a constant state of flux, the finance function must be flexible enough to evolve in both growth (organic and acquisitive) and contraction cycles. The finance function must be nimble enough to deal with environmental factors quickly and decisively in both cases. Faced with a cycle of growth, scalability will be necessary. Being nimble refers to the ability to refocus the finance function quickly if a new direction is taken by the business, while scalability refers to the ability to incorporate the impact of an additional initiative or business objective of the company. A strong finance function will exert control over a changing environment and temper the chaos associated with change in both instances. This controlled evolution will serve the small and emerging business well as it faces the challenges of the high-velocity business world. The only way to control this evolution is to continually update, review, and evaluate the strategy that governs the finance function.
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