Finance
Overview

"What we call profits, the money left to service equity, is not profit at all. Until a busmess returns a profit that is greater than its cost of capital, it operates at a loss. Never mind that it pays taxes as if it had genuine profit. The enterprise still returns less to the economy than it devours in resources. . . . Until then it does not create wealth; it destroys it."

Peter Drucker

"Accounting profits encourage an excessively short-term view of business. They also encourage an under-investment in information-based assets - staff, brands, and customer and supplier relationships. In today’s information age, the accounting focus only on tangible assets makes little sense now that these intangible assets are the overwhelming source of value creation."

Peter Doyle

"Accountants seem to imagine that a pile of money will grow if only you count it often enough. The point is simple: if you want to know what your future cash flow will look like, investigate where it comes from - the market. A farmer whose livelihood depends on a river flowing through his land will be concerned with the upstream situation, especially if the river could be diverted to a neighbour's property. Yet this is exactly where many boards give too little attention. Our research shows that companies that look to the sources of cash flow - those that think about the market - are more profitable."

Tim Ambler

Click here for information on our Management Programmes

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Companies need a new approach to finance if they are to compete successfully and grow the value of the business in real, rather than accounting, terms. At Hard Management we try to get behind the numbers and uncover their real meaning. The Hard Management approach focuses on:

  • value management - the traditional financial statements and ratios were fine during the “industrial age”; nowadays they can give a very misleading picture. For instance, on average, 75% of the value of a company does not appear on the balance sheet. The real value in a company lies not in its balance sheet assets but in the skills of its people, its accumulated R&D knowledge, relationships, brand, systems. Managers must fully understand the concept of “value” if they are to make sense of “finance”.

  • performance drivers - financial analysis using ratios should be placed in a broader framework. Financial ratios are based on historical data and are therefore a crude indicator of future performance. In addition, they track “symptoms” not “causes”. To illustrate: a reduction in profit margin tells you that you are making less on each sale but it does not tell you why. However, analysing “performance drivers” – for example, how many visits made by a salesman – will point towards “causes”. This is the approach of the “Balanced Scorecard” and this “balanced” perspective is a recurring theme of our programmes.
  • a sophisticated enterprise model - in our finance courses we use a spreadsheet showing how the various elements that drive financial performance fit together and affect each other. The impact of real world inputs, such as an increase in the average time it takes for customers to pay or reducing the number of sales people, can be seen throughout the financial statements – the impact on cashflow, the balance sheet, ratios and so on. As we progress through the course, each new aspect is considered in the context of the model, thus helping delegates to "fit the pieces together".

  • more than numbers - we emphasise that the “numbers” are only representations of a much more complex reality. As an example, a revenue forecast should not be simply last year plus 10%, it should be constructed from a deeper analysis of the factors that influence customer buying behaviour.
  • practical tools - the primary objective of our courses is not to teach finance; it is to give managers a balanced financial perspective and a set of practical tools that they can use to generate sustainable success.

For more information on Value Management, visit this excellent resource:

www.valuebasedmanagement.net

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