Each decision of a manager of a company, affects its results.
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Have you come across the theory that each decision of a worker, manager or owner of a company, affects its results and market position? This leads to changes in the prism of financial management. The attitude that the main player here is the Financial Director is going out of the window.
In modern companies, everyone is a financial manager in the field which he or she manages and is responsible for. Of course, the CFO stills designates the direction and creates the framework of the financial policy. However, it is the activities of managers, especially line managers (including young ones!), that have the greatest significance for the achievement of goals and influence the growth or loss in the value of the company.
Let’s take a look at an example
In a certain company, the financial director creates the rules of a credit policy and supervises the consistency of its effects with the aims of the organization. It assumes the realization of sales depending on the evaluation of the counterpart’s situation, signature of a contract, establishing contract security, setting payment terms and, finally, use of a discount policy.
In the end, however, it is the sales manager, within the framework of these rules, procedures and policies, who realizes the credit policy of the company. The sales manager participates in the evaluation of the company which applies for the credit limit, and recommends its acceptance or rejection.
The line manager, in turn, negotiates the conditions and payment terms within the framework of the rules and realizes the discount policy. He monitors the inflow of payments from the client, while bearing responsibility for it. It is true that the dilemma of “reconciling” the interests of the firm with those of the client, which is important for many managers, should be taken into consideration, but it is not the subject of our interest at this moment.
Line managers have a huge influence on a company’s finances
Analysis of the above situation has a result which is quite clear, that line managers have a huge, although often unconscious, influence on a company’s finances. Representatives of the groups to which young managers usually belong are not just machines who are controlled by the board or CFO of a company any more. They are currently becoming active players who have a real influence on its condition.
It is very important from the perspective of ensuring the foundations for developing an organization to develop the competencies of line managers in the field of understanding finances. They should be aware of the connections between their decisions and the situation of the company and its perception by the market.
Finance is an inseparable, and simultaneously passionate, element of the reality surrounding us and therefore knowledge of the rules governing it is so important. I hope that you have the opportunity in your company to understand and accept the financial policy, and also participate in its creation. If you and your colleagues obtain additional support from the financial department and are motivated to develop in this area, this is a sign that you are working for an organization which is strong and coherent, and which may be a great place for development.
In the next article, I will provide evidence for the thesis presented at the beginning, and examine the nature of modern financial management, especially from the perspective of the work of a line manager.
Dariusz Pierzak
