When I wrote my first book, Finance for Non-Financial Managers, it opened with then-current stories of CEOs whose companies had been caught gaming their financial reporting, while the CEOs claimed they didn’t know because they weren’t accountants, or some such excuse. I posited that CEOs could no longer afford to be non-financial, that they could no longer simply say “I didn’t know what was happening.”
Well, Oops! It’s still happening, despite our best efforts to turn the tide. Only now it’s not hitting the news about major companies like Enron, and it’s not even intentional manipulation. It’s happening in smaller, privately owned companies that are the backbone of American business. And most often it’s not that the numbers are bad (we don’t think so, anyway), it’s that the people running the company can’t read them and don’t know how to use them. Many of these companies are run not by their founder, but by a new generation of the founding family, the son or daughter or grandson or someone else who accepted the mantle of management as part of the succession plan of the company’s founders.
And that’s often a big part of the problem. Successor family members are often anxious to keep the business in the family, in part because the income opportunities that the family business presents are often harder to come by elsewhere, where the competition is keener and the advantage of the family name doesn’t exist. All well and good, and some wonderful companies are being run by the second generation, a few even by the third generation. But some of them are slowly running their wonderful companies into the ground without knowing it. They can’t read the financial reports they get each month, and as long as everyone is busy and customers are still coming around they think everything is just fine. Their finance department is underpowered because no one wants to spend precious profits to produce reports on “bean counting;” better to spend it on new products or marketing or management bonuses. No reflection on those perfectly valid choices, of course, unless it’s money that should be spent on financial management or worse, financial education.
Now I hate to beat a dead horse, but apparently some folks are still trying to ride it. If you are in a leadership position in your company, i.e., if it’s YOUR company, you need to KNOW that your numbers are basically sound, AND you need to be able to read and understand them. For yourself, for your banker, for the IRS, or for the investment bankers when you decide it’s time to exit with a handsome profit.
I’m not talking about audit-proof or precise to the penny. But they need to be reasonably close and honestly recorded, and you need to know that. If you’re not sure, please read the first paragraph again. And then consider that our Controller for Rent™ service can help. Better to hear it from people who are on your side of the table, don’t you think?
As always I welcome your comments and feedback.