Soft skills

Democratizing Finance, The Key To A Better Organization

Duration 4 minutes Modified on
Democratizing finance

For some of us, finance may be the scariest word in the world of business. From business schools to retirement planning, it is the one subject that is relegated to “experts”. While the sight of an excel spreadsheet can make us  shudder, finance  remains one of the fundamental pillars of a company. After all, without its finances, what would a company be?

This fear of finance is often due to a misunderstanding of what it truly is at its core: the primary function of a company. What does that mean ,you ask? Well, it’s simple: Companies are financial pumps. First, you raise money and assets. Second, you earn revenues or incur expenses. And finally, these elements are expressed in terms of cash flows. While a lack of financial training justifies limited financial knowledge, it doesn’t justify the fact that its necessity has been played down. So just how crucial is understanding the role of finance in your company?

“War is too important to be left to generals”

As said by a famous 20th century French Prime Minister Georges Clemenceau, battles are to be fought by all. If finance is at the heart of a company, it must be democratized for everyday use by your team members. There are two reasons for this: 1) understanding better how to make more strategic decisions and 2) bettering communication with the financial department.

There are several steps that will allow you to reach that goal. The first one is especially helpful for increasing managers’ understanding of finance. Of course, there is a reason why finance is reserved for experts. The idea is not to develop complicated formulas on long spreadsheets, but rather to do what a Harvard Professor, Marc Bertonèche, calls envelope calculations: simple, efficient and relevant operations that will help you understand the state of your company’s present, past or future in a matter of seconds. That’s easy enough to say, but you might ask how knowing about finance will help you in your job. Glad you asked! The following are but a few examples of how finance can help you:

Finally, it’s only fair to restructure the finance department as well. Unlike their current position out of reach in an ivory tower, finance departments should go through a similar process as all other departments in the past 20 years: be more efficient, get rid of all non-added value activities, increase productivity and outsource non-main activities. These actions all work toward the same end goal: working closely with all other departments to form stronger, better communication and a more solid team.

The tip of the iceberg

There are many questions left unanswered that we don’t have the luxury of tackling in one article. What about debt? How much is good for you? And the value of earnings per share? Why are some companies, like American Apparel, dying? Are financial forecasts any good? And what about mergers and acquisitions? 75% of them fail – is there a way to do better by using financial skills?

The insecurity of today’s world means one thing: no matter what forecast you make , you will always be surprised by what you find. However, although that is true, there is no value in finding yourself face to face with a wall you built yourself by avoiding learning about this fundamental aspect of your company’s success.