Financial Failure and Its Causes

Finance management is the ability of individuals to understand the financial consequences of all their actions and ensure they only do things that enhance profitability and avoid those that hurt it.

Not many are aware that financial mis-management is responsible for over 90 per cent of business failures the world over. Nine out of 10 businesses that fail do not fail because their marketing was inefficient and also not due to labour problems, but because of bad finance management. And this happens because of a widely held belief that finance management is the job of the finance department alone.

The truth is that finance management or mis-management happens in every department of an organisation. Most decisions taken by various so-called non-finance managers/executives are in fact financial decisions. A decision taken by a sales person, who is offered a large order provided he can cut price, to accept or to refuse the offer, is a financial decision. A decision as to the levels of inventory to be maintained by the stores manager is a financial decision. An HR decision as to the size of the ‘bench’ to be maintained is also a financial decision. In fact, what happens in the finance department is largely accounting related. Finance management or lack of it, take place in all the other departments. Every manager is a finance manager. It is therefore important that India, as a nation, is more financially literate. All people, across all social boundaries, should know how their actions affect their work places financially as well as have the ability to handle their own finances better.

Incidentally, my company Lamcon Training, a division of Lamcon Finance and Management Services Pvt Ltd, has provided financial education to several corporate houses at the senior most levels of management, within India and internationally for over twenty years. Now Lamcon has launched a ‘Finance Literacy for All’ campaign. This is an ambitious effort to spread financial literacy across India. It is widely recognized that anyone who is not financially literate pays a price for this ignorance. Today, when India is growing at a rapid pace and with newer opportunities and avenues emerging every other day, this knowledge and understanding becomes even more vital.

It is our belief that for India to continue its phenomenal growth it is important that each and every individual in this country is financially literate. Financial illiteracy could become the one stumbling block in India’s growth story.

While large corporations recognise the importance of educating their executives and do invest their time and money in doing so, the small entrepreneurs and individuals often do not do so, either on account of the relatively high costs or because they may not have felt the need. So that needs to be changed.


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What is Finance Management?
Finance management is the ability of individuals to understand the financial consequences of all their actions and ensure they only do things that enhance profitability and avoid those that hurt it.

Let us compare running a business to playing a game of cricket or soccer. What is the objective of playing the game? Simple – it is to win. What is the objective of the game of business? Just as simple – it is to make profits!

Now, whose actions win the game for you: is it the actions of the players on the field or the scorekeeper’s?

An accounts person is like the scorekeeper in a cricket match. It’s not the scorer who will win the match for his team but rather the players – the bowlers, batsmen, captain, and coach who will do it. And yet, without the scorer, the match loses it meaning.

In much the same way, it is the actions of each individual in every department that will help an organization to succeed. If their actions are financially intelligent, the organization will make profits; if not, it may suffer losses. You must never do anything without understanding how it will affect the organization’s profitability!

When, in addition to your designated area of responsibility you also call yourself a finance person, you are really saying, “I take the financial responsibility for my actions.” When a large majority of the workforce says this, the organization as a whole flourishes.

It does not matter whether your company provides services or products, or whether it does so through software, education, manufacturing, entertainment, media, or whatever, we are all in precisely the business of generating profits. That’s why you must be armed with the ability to understand the financial implication of your actions.

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