AF#4 - What Exactly Does Finance Do & How Does It Add Value?

Finance ‘strategy’…sounds kind of fishy to me...what does that actually mean? Buzzwords aside, here are three ways finance partners should add value …

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The first job of finance is assuring the core functions are in place: receivables, payables, reporting, tax.

Assuming they’re covered, then what is the next level…‘doing strategy’?

Buzzwords aside, here are three tangible ways finance should add value to the business.

Way 1: Translating Inputs To Outputs

A gardener’s inputs to make sure the grass is green are fertilizer and water.

Inputs are the discrete factors that determine the outcome of a business. Outputs are the financial results, more specifically long-term cash flows. The color of the grass.

The role of a finance partner is to explain the impact that inputs have on cash flow. Done properly it helps guide behavior.

A Popular Example

Measuring the ‘Return On Investment’ (ROI) is perhaps the most important translation - estimating the long term cash flows from an investment in a particular project.

ROI is based on a particular set of assumptions of what the business team will do and what will happen as a result. It’s always wrong.

But ROI’s are useful when it’s made explicitly clear what the assumptions are. The value is in helping the business team assess whether or not they think they can pull it off.

Way 2: Highlighting Risk & Uncertainty

Speaking of assumptions, finance helps by challenging:

(1) the likelihood that the inputs can be executed on as planned, and

(2) the expected results that said inputs will produce.

Very few things are 100% guaranteed.

Finance helps by challenging where on the confidence spectrum these assumptions fall.

Way 3: Offering Tradeoffs

Say the business team wants to go to the arcade. Finance’s role would be to help them choose the right mix of quarters, nickels, and dimes.

Finance: ‘We’ve got enough money left for three games of Space Invaders or one go at Skee Ball. Which one will get us the most tickets?’

When it comes to investing a budget, finance’s job isn’t just being a crypt keeper of the purse strings. It’s estimating ROI (how many tickets) and providing the alternative choices available.

A Visit From Finance

In ‘A Christmas Carol’[1], the Ghost of Christmas Future is pretty much Scrooge’s finance partner. He advises Scrooge that if he keeps living his way, nobody will mourn him when he’s gone.

He paints a very vivid picture that changes Scrooge’s behavior. He’s a translator.

In finance you have to be an ace with your calculator but you’ll only be a top partner if you’re using it to tell stories.

[1] https://en.wikipedia.org/wiki/A_Christmas_Carol

Billy Murray in ‘Scrooged’ (1988). Image: Paramount Pictures


Have some thoughts? Feel free to drop a comment or hit me up: charlie@charleskunken.com

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