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Home » Financial management in times of crisis

Financial management in times of crisis

By Richard Daniels Reading Time: 3 mins
Updated February 4, 2017

Financial management in times of crisis:- Today, the role of the financial director is extremely important within companies, since it is responsible for maintaining a sound structure of the company allowing long-term investments that are generators of wealth. This sounds almost like a Chinese tale today.

Financial management in times of crisis

In this article I describe certain skills and actions that can be done by the Financial Directors of a small SME or, if applicable, of an entrepreneur who is carrying out these tasks.

In times of crisis, the Chief Financial Officer must have a long-term vision to seek the maximum benefit with the lowest risk. This ability, likewise, should keep the Chief Financial Officer in good times. That is, rationality above the climate operating in the business environment , either positive or negative. But beware, this does not mean that the Chief Financial Officer must obviate the state of the environment, it means not to be carried away by it.

In fact, conservative CFOs are the ones that are best in periods of crisis, but it is also true in my view that they are the ones with the least benefits they can generate in good times. It will be your work to seek balance.

Other skills that should have a CFO are:

Long – term vision, not to lose the business vision for the future.
Leadership, to be able to motivate other colleagues and motivate section in the day. This creates an atmosphere of confidence that improves the efficiency of the equipment.
Communication. To convey in a simple and consistent way the facts.
Teamwork, to address situations more safely.
Negotiation, to improve contracts and agreements with suppliers.
Ethics, in order not to fall into punishable practices.
Regarding the measures to be adopted by the Financial Directors, are the following:

Business diagnosis. Since not all sectors are in recession, not all companies, the Chief Financial Officer must make a diagnosis about the state of your company and the environment in which it moves in order to make the right decisions. In any case, an action that must be common is the correction of the weaknesses found.
Improve their financial structure. The management of a company must be focused on the generation of value towards the client, and consequently, on the billing and benefits. For this reason, the Chief Financial Officer must maintain a sound structure to avoid conflicts in this sense by management. For this purpose, it is important that the Chief Financial Officer maintains, first, the company’s net worth as an important part of the investment, and secondly, current liabilities less than current assets.
Improvement of efficiency through balance. The Chief Financial Officer can improve efficiency through actions related to the company’s balance sheet and asset efficiency, such as reduction of non-current assets, reduction of inventories, reduction of the number of intermediaries (cost of liabilities) and others.
Improving efficiency through the income statement . These actions are related to cost reduction, such as reducing the cost of materials, improving supplier conditions through a strategy of concentration, variability of fixed costs or an improvement of the organizational chart.

All these measures can help get through crises without doubt, in fact some of them, if not most, should be addressed to some extent before the crisis . For example, a cost analysis system is essential for businesses, and for this, the technique ABC improvement costs by eliminating any element not generating customer value.

For example, the technique of ZBB allows us to eliminate costs carried forward from previous years that do not fully understand why they occur.

Another example of value always is to question the organizational systems of our companies. The labor market is changing, and companies must address these changes with improvements in their systems, that is, through new organizational models in network, for example.

The question to be answered is CFOs What should I implement them? And the answer has to be linked by the diagnosis of the company and by the strategy that is carrying out.

Another equally important issue is the innovation. Financial Directors must understand innovation as a fundamental element of business competitiveness. Therefore, they should assume and understand the difference between cost and investment in times of economic crisis may be distorted. Companies committed to innovation will be the leaders of tomorrow , or as the great Peter Drucker: ” Companies that do not understand innovation not understand business.

Author at Business Study Notes
Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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