Follow the money…..

Happy new year to you all! Many writers tend to start their first blog of the year by offering predictions for the coming year but I am going to resist that temptation, not least because 2012 is shaping up to be the most unpredictable year ever!

With the New Year only a few days old we have already had a raft of positive and negative statistics  lending themselves to both optimistic and pessimistic interpretations. Based on this I think it is safe to say that "Old Dogg’s Alamanac" will not be making an appearance in 2012.

Finance Directors as a breed like to know where we and our businesses stand at any one time so this uncertainty does not sit easily with us. Nonetheless, like many of the companies we work with, we have had to change our way of thinking and carrying out scenario planning with copious “what if” analyses is now as regular a part of the FD routine as monthly management accounts and weekly cash flows.

However life and business goes on and there remains a need to find and develop profitable opportunities. We can’t continually keep saying “no” or “wait”. But how do you get them? Moreover how do you evaluate them?

My mind goes back to my days as a naïve young accountant in industry and when I was introduced to a newly appointed business development director. Keen to learn about life beyond the finance function I asked him how he would go about getting new work in. I expected him to say he carefully researched what projects were happening and where, and then worked out which ones he thought the business had the best chance of getting. However his response was short and to the point. “I’ll just follow the money”, he said.

Follow the money. Simple yet obvious. Find out who actually has money to spend and what they intend to spend it on. Then you can focus on what you can do to help them spend it. If you are dealing with a business credit checking, common sense, industry gossip and the past histories of any individuals help. If you are dealing with consumers it’s a question of need to haves and nice to haves.

By following this money trail you can ensure that you don’t waste time on things that clearly are not going to work financially, especially in this climate. People can talk about projects and products that they are working on till the cows come home but unless there is money in the background somewhere there is little point in you as a business chasing them.

When I first asked that question I thought I knew how money worked. And I guess in terms of debits and credits and P&Ls and Balance Sheets I did. But good finance people realise that it works in many other ways as well, and understanding these and working them into our financial management processes is just as important as all those technical skills that we and our clients and employers take for granted.