To Become A Financial Department That Understands Basic Business.

Why should the financial sector be criticized in some enterprises and units and cause contradictions between the financial departments and the business departments? To discuss this problem, we must first make it clear that the common goal of the financial departments and business departments is to create value for enterprises. Only when this point is clear can we have the foundation to solve the problem. From this point of view, there is no common ground to solve the problem.

According to the classical theory, an enterprise determines its strategy and goal, and then decomposes it into different departments and units. Problems arise. The decomposed departments' goals may not be consistent with their original intentions. In poetic language, they say, "walking, we have forgotten why we started." It causes the departmental goal to deviate from the overall goal of the enterprise, for example, the system of financial departments in compliance with regulations, and for the sake of system, but does not consider what is the purpose of compliance and system. In the final analysis, compliance and system are aimed at creating value for enterprises together with the business departments; technological R & D departments develop technology for technology and R & D, but do not consider what technology and R & D are for; and technology and R & D are ultimately aimed at meeting customer needs and creating value for enterprises; sales departments sell for sale, but do not consider the possibility and speed of capital recovery, and the impact on enterprise funds. This way Therefore, the core of enterprise management is to twist all departments and people into a rope at all times, and aim at creating value for enterprises. Therefore, the process of solving the contradiction between the financial department and the business department is a process of twisting into a rope.

To solve the problem, first of all, the finance department should become a financial department who understands basic business. At present, the problem of the finance department is that the division and boundaries between other departments are too obvious. Finance is finance and business is business. The vast majority of financial accounting personnel receive education in financial accounting knowledge, and little knowledge of business knowledge. We can try to answer: who are the top ten customers of the company? Who are the competitors? What advantages do we have compared with our competitors? What are the challenges that the company will face in the future? If the financial departments are not aware of the above problems, it is a purely traditional financial department that does not know business, basically accounting and dealing with financial affairs, and rarely participates in the process of enterprise value creation. We do not need to be a business expert, but we need to understand the basic business knowledge of an enterprise.

At present, the financial departments of an enterprise can be divided into three categories: bookkeeping, Control type Value creation. The financial department of most enterprises in China is bookkeeping business department completes business, accounting department accounts according to accounting standards, accounts, reimbursement, this type of financial sector is of little value in the eyes of management. According to popular language, "whether you remember or not remember, the assets of enterprises are so large; whether you calculate or not, the profits of enterprises are so large; whether you report or not, there is so much cash in the enterprise." The assets, profits and cash flow of an enterprise are not recorded by your financial department, nor are you calculated by your financial department. Financial personnel can also ask themselves: what value do we bring to enterprises? Bookkeeping, accounts and reimbursement also have basic value, but the added value is not high enough. These basic jobs are like rare earths sold to foreigners by Chinese cabbage. There is no big contradiction between the fully bookkeeping finance department and the business department. Although the financial department sometimes disagrees with the business department, the business department is the main business.

Many enterprises turn to control type under the request of the Ministry of finance's "internal control standard". When many enterprises are doing internal control, there is a problem of target positioning -- putting the goal of compliance in the first place and forgetting other goals, which leads to the internal control system and process which will be more harm than good to the enterprise. We should bear in mind that compliance is only the primary goal of internal control of enterprises. The advanced goal of internal control is to improve the operation efficiency and effectiveness of enterprises, so as to carry out the strategic objectives of enterprises. For systems and processes, we need to figure out why, where and where the disadvantages are. What is even more frightening is that once the system and process are stereotyped, the executors do not take into account the specific circumstances and changes in enterprises and become rigid soldiers. The contradiction between this type of finance department and business department is the biggest. Therefore, the financial department should always examine the system and process from the perspective of advanced objectives, and avoid the system for the sake of system and process for the process.

In the future, the financial departments of enterprises should be bookkeeping, controlling, and value creation. On the basis of control, they can create value for enterprises by giving full play to the management function of Accounting: providing support for business departments' decisions and participating in business. Through financial data, the problems of enterprise system, process and management can be found, and how the business department can do better; through competitor's financial data analysis, grasp the dynamics of competitors and participate in the planning of enterprises; through benchmarking management, help enterprises learn from each other's strengths and weaknesses, and so on. This type of financial departments and business departments can achieve well integration, that is, the integration of industry and finance and the integration of business and finance. From the perspective of Ren Zhengfei's bombardment of the financial sector, it is obvious that HUAWEI's financial sector needs to take a road of transformation.

When the financial department understands business, it should become a trainer and train the basic financial thinking and knowledge of business people. Financial management is not only a matter of the financial department, but also the financial management of all the departments and staff of the company. Business people do not need to be financial experts, but they need to understand basic financial thinking and knowledge. The problem now is that many business people think that finance is a very professional and difficult thing to understand, a department of the financial department, and our financial staff are complacent with professionals. We should pass on our financial thinking and knowledge to people with very simple and popular language, and we must not be proud of our difficult and awkward professional terms.

We need to know Business personnel How can we understand it? Let's take an example: 8 million of the sales department sold 10 million of the price. How much money do we sell at the price of 10 million? Most people think that they earn 2 million and make a performance commission according to 2 million, but financial thinking first considers the probability of recovery. Secondly, consider the time and cost of the collection. When we explain to the salesmen, we should not take the concepts of current value and money time value into account. You just tell us that we have to consider the interest rate. If every department and everyone in an enterprise understands basic financial thinking and knowledge, financial management is difficult to do well. Therefore, the financial sector should be a corporate financial thinking and knowledge trainer and disseminator, which requires us to continuously improve our communication skills.

The financial sector needs to establish a dynamic and developing competitive theory and apply it in practice. The biggest problem of the finance department is that accounting knowledge is more than enough, while the concept of dynamic and development is insufficient. The classical theory of corporate finance seems to be too simple and too pale. They have not made much contribution, but they have become obstacles to progress and understanding. These theories are not based on dynamic equilibrium, but regard competition and decision as static equilibrium phenomena in static economy. The classical theory is based on the abstract cost behavior mode, and these cost behavior patterns hardly appear in real life. The assumptions made by these theories to the competitive behavior of enterprises can not be observed in reality, nor are they helpful to the prediction of competitive behavior. We should realize that accounting theory is not appropriate to interpret economic behavior, because accounting theory is established for other purposes. Starting from reality, we believe that in dynamic competition, we should not base on accounting theory, but rather based on cash flow -- "cash flow is the key to all."

Why do the financial departments get a lot of criticism? Because many classic static financial theories will lead to wrong results when they are applied to the dynamic environment, and naturally they will cause dissatisfaction. Here are some simple examples:

Usually, the financial department thinks that product pricing should be able to make up for the cost of products. This is a static concept, which is equal to selling the future to get short-term profits. The dynamic consideration is that if we pre emptive the price reduction and take the lead in expanding the production capacity, we can buy the market share and lower the relative cost, so that the price below the cost at the initial stage will be enough to make up for the reduced cost in the future and reduce the potential competitors' interest in the industry so as to stabilize our competitive position.

For financial policy, the classical theory holds that debt raising will increase the financial risk of enterprises, and the overall risk of enterprises will increase. However, if an enterprise actively uses debt to support pre emptive price reduction and production capacity expansion, thereby helping enterprises to gain market share, it will ultimately reduce the total risk of enterprises.

For example, for direct labor costs, financial departments are accustomed to quotas. Labor cost Or standard labor costs, but in reality, labor costs will vary with learning curve or experience curve. The cost of experience curve is a visible phenomenon, but rarely in classical financial and accounting theories.

Generally speaking, the rising price of the industry is good news for enterprises. However, the short-term price increase will speed up the introduction of new production capacity. If the total market demand remains unchanged, the long-term profits of the industry will be reduced, which will be a bad thing for the long-term development of enterprises. The essence of strategy lies in controlling the opponent's willingness to invest capital in order to expand production capacity.

In investment decisions, we are used to calculate net present value and internal rate of return with historical data and trends and price and cost information under current competitive situation. In fact, investment decision is a market share decision - we need to consider the reaction of competitors. With the expansion of production capacity of all competitors in the industry, prices will generally decline. Therefore, whether the competitive signal transmitted by investment decisions will affect the market share of the industry is a problem that we need to consider dynamically in the investment decision.

Also, traditional finance and accounting In theory, we should pay more attention to profits. Book profit is only a signal, and it will not be misleading if it represents the competitive position that the enterprise may eventually win. Cash is the only valuable thing, but cash can truly reflect its value (free cash flow) only when the enterprise does not need to invest in defending its competitive position.

A good CFO should be a business planner, controller and trainer of an enterprise. He must possess technical expertise, communication skills and strategic vision. There is still a long way to go for the financial departments of most enterprises to have real financial departments and achieve real financial and business integration.

A young and promising artillery officer began to inspect and drill at the beginning of his troops. He found the same situation in several troops: in a unit training, a soldier always stood still under the cannon of the cannon. The officer was puzzled and asked why. The answer was: the drill regulations require this. After reviewing the military documents repeatedly, the officers finally found that artillery training regulations were still following the rules of the non mechanized era for a long time. The soldier's task under the barrel is to hold the reins of the horse. In that era, the artillery was transported to the front by horse and cart, so as to adjust the distance deviation caused by the recoil force and reduce the time needed to re aim the target after the artillery was fired. Now the artillery automation and mechanization degree is very high, no longer need such a role, but the drill regulations have not been adjusted in time, so there is "no horse soldiers".

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