What is Financial Firection in small businesses

finanzas 0 Carlos González de la AlejaCarlos González de la AlejaAgustín TiradoAgustín Tirado

When analyzing Spanish business fabric, we find that there are 3,282,346 undertakings and 1,535,516 self- employed people registered with Social Security system.

 

Figures Report September 2017
Source: General Secretariat of Industry and of Small and Medium sized Enterprises (SMEs). Figures Report September 2017

 

According to the graph above, around 94% of Spanish ventures are composed of businesses that have less than 10 workers and freelancers, reaching 99% if we include to the said ventures the SMEs.

This situation usually results in the absence of necessary resources intended for the management and financial planning of the SME. In other words, being aware of the resource constraint this kind of ventures have, the said resources are used for carrying out their own business activity and not for financial planning and management.

Without proper financial planning, in the vast majority of SMEs, strategic decisions are made without information, based solely on managers’ experience. In light of this, and taking into account that the term of decision making is increasingly shorter, financial planning and management take a key role in this type of businesses.

But, what is the financial management and what does it consist of?

Financial management area is in charge of the planning, implementation and interpretation of financial information through the setting up of the future strategies of the company. In other words, it determines which path is the most suitable for the organization in the medium-long term, through the analysis of its management and its past and present results.

As is well known, all organizations are dynamic systems and are involved in continuous change. That is, every company is different depending on when it is analyzed. Thus, the role of the financial director is key to the health is key to maintain the business or to make it evolve favorably in the future.

It is vitally important that the answers to each of the business proposals are based on an analysis of the future scenarios posed by the different alternatives each proposal may have. Said another way, analyzing all the information available (through Reporting), and making a future projection of the organization according to each of the options we have on the table (modeling through Data Analitycs), are Key functions of the Chief Financial Officer (CFO).

The main benefits obtained when it comes to having the proper financial planning and management are:

  • Decision making supported with valuable information.
  • Identification of key indicators or Key Performance Indicators (KPI) to show us if the actions taken are giving the expected results.
  • Evaluation of the ability of the company to undertake new investments.
  • Identification of the optimal financing structure.
  • Management of business liquidity.

But how does the role of the CFO fit in with SMEs?

A suitable profile as CFO requires high qualification and professionalism. The main problem for most SMEs, is that they are not able to afford the cost of having personnel with this profile.

Therefore, most of our country’s businesses do not rely on a financial manager that helps them to anticipate possible liquidity tensions or the abandonment of lines or products that are a burden, and that they end up being a failure of many business projects.

Not having the figure of a CFO does not mean that you cannot count on a financial management service. Nowadays, the outsourcing of this service is a real and economic option that will contribute to the professionalization of the management of your company, helping you in the process of making strategic decisions and improving your company’s profitability.


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