3 Reasons Why Finance is Neglected in Owner-Managed Businesses

While no business owner sets out to ignore any part of their operations, many who run medium sized enterprises confess to involuntarily overlooking the finance function.  However, given the environment of increased regulation, global competition and economic uncertainty, finance has to take on an integral role in order for a medium sized business to succeed.  So, why do business owners and managers find themselves in this predicament and how can it be changed?

A Lack of Understanding

More often than not, a business is born out of passion, and that passion usually doesn’t involve managing the numbers.  Given the traditional view that finance is all about keeping the books in order, implementing financial controls and preserving the company’s assets, it is no wonder finance ends up taking a back seat in an organization.

However, the role of finance and the CFO has changed markedly in recent times.  Rather than simply getting the sums right and guarding the company’s assets, modern companies rely on their finance function for ideas on innovative ways to cut costs, grow revenues and transform entire operations.  More than just working within accepted accounting and finance principles, the CFO also needs to have business acumen and be a strategic visionary.

A Lack of Time

Owner-managed firms are often not big enough in size to warrant large management teams and complex hierarchies.  This results in business owners and managers having to choose where to devote their time and effort.  Since many do not have an accounting and financial background, or an interest in recording transactions as well as preparing and analyzing financial statements, they are more likely to be heavily involved in parts of the business where they do best, while overlooking the critical aspect of financial management.

A Lack of Resources

Given the tendency for finance to be lowly ranked in terms of priorities, resources within an organization are far more likely to be directed towards efforts in sales, purchasing, production, marketing and managing people.  The consequence of a small budget for the finance function is that owner-managers often hire someone to head up their finance function not on the basis of their experience or qualifications, but rather on price.

A Good Investment

The effective management of working capital evolves around how your company can purchase assets that will propel your business forward.  It could be that hiring a qualified CFO will be one of the best investments that you’ll ever make.