Too many executives and government officials confuse financial management with financial leadership, but the two are not the same thing. Financial management is almost exclusively based in collecting data, producing reports, analyzing trends, and resolving more immediate financial issues. Financial leadership, on the other hand, is more about guiding your organization to long-term profitability and sustainability.
As an example, let’s look at a couple of financial issues that companies are slowly starting to deal with: bitcoin and blockchain. A financial manager is all about looking at the data, predicting viability, and weighing the pros and cons of the systems themselves. A good financial leader, however, is more about taking that information and combining it with the best interests of the company, then making a decision whether to begin integrating the new technology based on how it will fit into the company’s long-range goals.
This is the job of a financial leader, whether it be someone who officially holds that title or some other executive director. The person in this role is responsible for the development of a business model that produces near-term profitability and sustained financial health. It’s not easy to do that successfully: the financial leader has to be ever mindful of the business plans and realities, constantly juggling them against opportunities that arise. It’s easy to lose focus, which is why we’ve put together a list of key principles that should help keep financial leadership practices on-course.
Remember Your Mission
Businesses exist to make money, but losing sight of the how and why behind your success can cause you to lose focus … and that could impact your revenue stream. Your mission statement should be like a road map that is guiding your company to its goals.
Commit to Your Budget
For a lot of companies, the word “budget” seems to be permanently preceded by the word “suggested.” That’s not a good plan for long-term success. Once you have an approved budget, stick to it as much as possible: whatever the financial goals for the year, if things aren’t on track, then even budgeted expenses should be questioned and reconsidered.
Mitigate Your Risk
Financial leadership carries some real risks. Should you maintain the status quo? Even “blue chip” stocks are feeling the pain of too many eggs in one basket. On the other hand, evidence shows that more diversification doesn’t inherently mean greater growth or cash flow. Keep a constant eye on the market, and alter your business plan cautiously.
Manage Your Cash Flow
Few things can screw up operations quicker than not having the right cash available at the right time. That’s why financial leaders should have a direct role in developing cash flow projections, and reviewing usage. The earlier you spot potential cash flow issues, the easier it is to keep them from becoming full-scale problems.
Maintain Your Cushion
Building and maintaining a “cash cushion” can help keep operation stable in the event of an unexpected shortfall or unbudgeted expenses (such as a natural disaster). Take care, however: once you’re able to build a reserve, it’s use must be intentional and strategic. Dipping into your reserves to fill a long-term income gap is an extremely slippery slope.
Obviously, little of this could be considered “new” advice. You’ve likely already implemented some of these business principles, while others may rub against your definition of “best practice.” Ultimately, however, financial leadership requires a constant balancing of internal needs, external demands, and long-term vision. These principles can help you adapt to the demands of the changing environment and maintain the balance needed for long-term growth and sustained financial health