In part I, we started into the discussion of why business finance tends to be difficult to understand for most people, even though its relevant to everyone to some degree. Now, let me get into how this relates to you as a business owner or business manager.
I left off talking about the apparent communication gap between finance tacticians and the rest of the world.
I also mentioned how when you’re in business for yourself or managing business for others, you can be very much at the mercy of your advisers when it comes to matters of finance.
Does this mean you shouldn’t utilize advisers? No, I’m definitely not saying that. Experts in various financing disciplines can be absolutely critical to your business success.
So, lets summarize what we know so far.
– Business finance can be hard to understand, comprehend, and apply.
– Its an essential part of any business venture
– Leaving too much decision making up to your advisers can be dangerous.
– There is a long standing communication gap between finance experts and everyone else.
– 99.9% of the world have a very limited understanding of finance, how it works, and how they can more effectively utilize it to increase their wealth.
From a business ownership/management point of view, there should be a strong motivation to correct this trend, and I think there is, but few people understand how and continue to muddle through what already doesn’t work very well.
So what’s the solution?
Like anything else in business, the owners and managers of any business need to control and direct the forces of the business to be successful. When it comes to finance, its hardly practical to advise or expect non financial managers to develop a deep understanding of business finance in order to get greater value.
Most Entrepreneurs will have a primary focus on marketing, which they should as marketing is the #1 most important activity in a business. But finance is #2 , and is the counter balance for marketing. Look at any large scale business and see how they’re organized – marketing on one side, finance on the other.
So the answer is not to become expert at something you may not be good at or have an aptitude for (basically going against your wiring).
The answer lies in your approach and commitment to maintaining the necessary chi like balance between #1 and #2.
Can I have a drum roll please.
The secret to optimizing the finance component of your business is to connect all finance activities into the three core business finance objectives that apply to any and all businesses regardless of size, structure, or country of origin and then make sure they are congruent and supportive of the overall business objectives of the organization.
Wow, that’s a mouth full. And hardly more enlightening at this point.
But stay with me as all will be explained in the next segment.
I will reveal these three core business finance objectives in part III and further explain how they relate to the broader organizational objectives (and show you that its not even that hard to do once its been explained in a little more detail).
Have you ever got a sharp pain behind your eye or gone instantly into a comma from trying to make sense of almost any information written on business finance or any finance application for that matter?
And I’m a finance guy, or at least someone formally trained in finance, and I get the same headache.
So what’s the deal with this? Is is really so hard to understand and does it have to be so unfun to read and digest?
In fairness to my fellow egg heads, there is a fair amount of complexity to the actual math associated with finance and finance theory. Add to that the business finance disciplines like taxation, accounting, treasury & foreign exchange and you end up with some really mind blowing stuff that 99.9% of people have no interest in whatsoever.
So why bother with it all?
Well, because its essential. Essential to us both personally and commercially.
I mean we live and work and play in a society that is based on a capitalism model which requires money for exchange of goods and services which requires finance systems to operate.
And in the business world, every single business must have some proficiently in finance, or there won’t be much of a business, certainly not a very profitable one.
So, on the one hand, everyone needs to understand and apply finance to some degree. But on the other hand, the technicians that understand the topic frankly suck at explaining what we need to know in relevant, applicable terms.
Thus, we have a knowledge gap which starts right in the public school system. You can graduate from high school without being shown how to write a check, balance a bank statement, or receive any basic instruction on the responsible use of credit.
If you go to secondary school, you may or may not get exposed to a whole lot more, depending on what you take. Even if you go into a business school, or even a business masters program, the amount of directly applicable information you may receive can be quite small. You’ll learn a lot about finance theory and accounting practices, and taxation strategies, and you’ll be provided with lots of big company examples with lots of complex corporate examples that 99% of the people would never be exposed to in their life time.
Then, when you venture out on your own, you will follow one of three paths related to finance: 1) you will get an unrelated job and learn through trial and error how to get a mortgage, a car loan, a credit card, and a line of credit; 2) you will pick a finance related discipline and learn a great deal about that particular aspect of business finance, but still be dumb to most of the rest of the subject matter; 3) you go into business and live at the mercy of your advisers (accounts, tax specialists, bankers, brokers, lawyers) who will hopefully know what their doing for what you pay them and know how to apply their knowledge to your real world baby.
Basically, we live in a world where there is an enormous gap between the technical finance knowledge holders and the rest of us making up 99.9% of the population.
While there is no shortage of information available, most of it is just not all that useful to the average person of average intelligence who does not have any special interest in finance
If it sounds like the system is broken, it is.
So what’s the solution?
Stay tuned for more in part II