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Financial Management: Financial literacy for decision makers

Get insight and knowledge in financial management. Understand the difference between financial maintenance and financial management

Most companies, large or small, have key staff members who are strong as it relates to financial analysis and financial management……..WRONG!  The fact is that most organizations still equate financial management as the ability to make sure that there is money in the bank, that financial records are up to date, or that there is a proper accounting of all financial resources.  What many people don’t understand is that those activities are closely related to financial MAINTENANCE, not financial management; and yes THERE IS A BIG DIFFERENCE.
Financial management is not a cold type of program inclusive of multiple sets of mathematical equations or simplistic administrative processes; financial management is a science, and that science must be respected as companies need to use the finding to:
• Handle the corporate decision making process• Mitigate Risk• Determine growth initiatives• Ascertain the effectiveness of the strategic plans developed by management• Evaluate departments and employees• Maintain shareholder satisfaction• Assist the Board in making decisions affecting the course of the company
While financial maintenance is not only important, but also vitally necessary to the strength and sustainability of the organization; it is a grave error believing that these activities are interchangeable.  
In a NEW GLOBAL ECONOMY where companies must place increasing onus on how decisions are made, the element of risk associated with those decisions, and the ability to create contingency plans that allow companies to “hope for the best, but plan for the worst”, financial management must be a major element of everyday operations for all organizations.
The problem is that many companies still use an antiquated approach to financial management that puts them in a risky position in both the short term and the long term.  While surveys show that 55% of companies site the need for stronger financial expertise, the fact is that number should be more like 90%.  This in no way infers that existing financial experts are incompetent; what it infers is that most companies require more people than they currently have to handle financial management initiatives. 
The fact is that access to capital is tight, and IT IS GOING TO STAY THAT WAY for the foreseeable future; shareholders are nervous, sales are instable (almost across the board), and financial safety nets (be it a commercial line of credit, private debt, shareholder investments, Private Equity, or Venture Capital) are harder to maintain than they have been in decades.  With all of these changes it is unreasonable to assume that the financial practices of the last two decades will suffice in the current economy; and that means that companies will be forced to change the way that they handle financial management initiatives.
It is important to understand that the key decision makers within organizations all over the globe are trying to stabilize financial operations on the fly without the benefit of any tried and true methodology.  The fact is that this is one of the largest global recessions seen in the lifetimes of any of those decision makers, so the focus must be on retraining how we manage the financial infrastructures of our companies.
Taking a scientific approach to this will include:
• Analyzing the current financial infrastructure of the company• Determining key decisions that need to be made to transform the infrastructure into a sustainable one• Locating people who are well versed in risk analysis, portfolio management, operations, and investments to assist your team in developing a cognitive and logical operating plan• Determine what your resources are, analyze whether they present long-term solutions, or short-term stopgaps• Build alternative scenario models to determine the effects of making aggressive or conservative decisions• Build contingency models that will prepare you for multiple situations• Build financial disaster management models that take catastrophic situations that are PLAUSIBLE in the current climate and build plans for the company surviving (THINK ABOUT THE GLOBAL AUTO OR BANKING INDUSTRY IN 2007; WHAT SHOULD THEY HAVE SEEN, AND WHAT TYPE OF PLANS SHOULD THEY HAVE HAD)• ABOVE ALL – REMEMBER THAT DISASTER CAN STRIKE ANY COMPANY, AND YOUR ABILITY TO BE PREPARED AND SUSTAIN OPERATIONS DURING THESE DISASTERS IS WHAT WILL DETERMINE YOUR LONG-TERM SOLVENCY
These aren’t all of the answersArticle Search, but the goal is to get you thinking about how things have changed and how your ability to develop and maintain a sustainable financial infrastructure for your company will determine your company’s ability to succeed long-term.

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CEO and Founder – RentADirector.comVijay Mistri, MBA (Finance), FCMA, FCCA is a leading management and governance consultant, having been a board advisor for organisations from various industries.

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