Bridging the Gap - Understanding Finance for Successful Business Leadership
The Executive Summary:
A thriving business maintains equilibrium between the Sales Director's ambitious outlook and the Finance Director's prudent approach, but often these two roles lack a shared understanding of income, profits, and cash flow, restricting effective communication and strategic decision-making.
Many Finance Directors and Finance Managers struggle to effectively articulate how finance integrates with business strategy and operations due to their more introverted nature and the focused requirements of their role.
Leaders are advised to build a stronger relationship with their Finance Directors or Managers, understand the profit and cash flow within their own department, and actively engage in conversations about the financial aspects of the business.
Our Liberating Leadership Programme is an excellent platform to address these challenges. It empowers leaders with increased confidence and capability, and encourages improved communication, fostering more robust decision-making processes, and helping effectively bridge the gap between different business units for cohesive growth and development.
Every thriving business is built on a delicate balancing act, carefully maintaining equilibrium between an ambitious Sales Director and a prudent Finance Director. In an ideal world, these two pivotal figures unite, merging their knowledge of income, profits, and cash to fuel sustainable growth and manage cash flow efficiently. Yet, the reality is often starkly different.
Too many leaders lack a comprehensive understanding of these three vital components, inhibiting robust, healthful debates both at operational and strategic levels. The focus is frequently confined within the walls of their individual departments, driven by their specific needs. This problem is exacerbated when many Finance Directors and Finance Managers – often introverted experts – aren't equipped with the skills to effectively engage their peers in creating a shared vision of how finance integrates with business, strategy, and operations. I should know, I was a Finance Director, and that’s why I do what I do now.
As an employee, it’s someone else’s money that we are investing, which often leads to rigorous decision-making processes backed by solid business cases. However, as a business owner, we tend to be overconfident in our ability to make things work and may tend to shortcut these rigorous decisions, particularly when funding isn’t externally sourced. The question then arises: how do we promote rigorous decision-making for director-led initiatives?
Here are our Top Tips for Confident Leaders:
Build a stronger relationship with your Finance Director or Finance Manager. Show interest in their roles, their challenges, and their triumphs. Understand that they're a vital piece of the business jigsaw puzzle.
Gain a deeper understanding of the sales profit and cash flow within your department. Does your department generate profit and cash independently, or does it rely on the revenue generated by others? If it’s the latter, do the revenue-generating departments recognise your department's value?
Engage in more conversations about your business's financial aspects. Get curious about how the financial gears of your company work. Pose challenging questions and drive towards creating win-win solutions that benefit all stakeholders.
As a relatively simple but powerful exercise over the next week, why not sit with your finance lead and ask them about a financial statement or concept that you've always found baffling? Then, share your newfound understanding with your team and see how it changes your perspective on decisions.