A definition for Financial Management is “…planning, organizing, directing and controlling the financial activities and use of funds of the enterprise” Finance in any company is where operational actions, transactions, and activities are accounted for in terms of financial numbers. Financial Management cannot succeed without having fluid and well-defined processes that draw people-systems-processes together. Processes are used to capture transactional data, IT is used to convert transactional data into usable Business Intelligence and Managerial Information.
Centre to exercising financial control, internal controls and segregation of duties, in achieving the above interaction, stands Working Capital. Many view working capital as the mere end-result or position at the end of the financial reporting period. Working Capital is the life and heartbeat of any business, big, or small. Even though Working Capital consists of balance sheet balances about Accounts Receivable, Account Payables, Inventory, Bank Balances, Bank Overdraft and short-term financing, Working Capital needs to be managed daily and pro-actively. It’s vital to understand the specific drivers of any business’s working capital. Not one business compared to the next has a similar Working Capital driver-set. Just like each person’s heartbeat is different, in an analogous way, the Working Capital of each business, large or small, or even companies in the same industry, have a different Working Capital heartbeat.
A person’s heartbeat and heart rhythm are made up of unique drivers and DNA. The heart is the first organ to develop after conception. It thus makes it the most important organ in the body. Likewise, a business’ customers, suppliers, business cycles lead to each business having a unique “DNA” or rhythm supporting its Working Capital. Each rhythm shapes the working capital cycle. Although one cannot at once and directly change Working Capital in an instant, understanding the operational drivers attached to the business’ DNA allows for the opportunity to develop intelligence that sheds light on the things that the Financial Controller and Financial Manager can influence to cause specific targeted Working Capital outcomes and improvements.
Just like a Cardiologist implants a pacemaker into hearts for best heart functioning, finance gurus and experts too can enhance the operational drivers that contribute to healthy Working Capital. To achieve such status, it’s important for the Financial Controller, CFO and Financial Manager, including their respective reporting teams and team members, to scale Transactional matters into the Big Picture. The greater the level of experience combined with diversity (emphasis added), the easier it is to manage Working Capital. Working Capital is dynamic and not static. When focusing only on Transactional matters, Working Capital is not optimized. In contrast, combining diversity in experience and sophisticated BI and Financial Modeling crystallizes the projected Working Capital position under measurable expected business conditions. The Financial Controller, CFO, and Financial Manager can then manage against such protocols.