6 Characteristics of Financially Successful Organizations. Corporate Finance Principles. Financial Learning.

Characteristics of Financially Successful Organizations
Financially successful organizations, whether in any industry, share the six essential characteristics discussed in this section.

Sound and Financially Literate Leaders
Financially successful organizations have leaders who can envision, engage, and execute. Senior leaders have the capacity to envision the organization’s future. They know how to move a group of people forward on a common mission and deliver results that exceed rather than meet expectations. They respond quickly and appropriately to a rapidly changing environment and at the same time address new realities in internal operations.
Financially successful organizations most often have CEOs who are financially literate, financially interested, and financially responsible. They recognize the need for and importance of financial leadership. They set concrete goals and objectives and lead the team toward goal attainment. Such organizations also generally have a chief financial officer (CFO) who is a strategic leader and an essential member of the executive team. The CFO is often viewed both internally and externally as the number two executive in the organization.
The boards of financially successful organizations govern around explicit expectations and metrics and are guided by an attitude that senior management will deliver expected results on a consistent basis. The board’s comprehensive view of the organization’s overall financial target enables it to manage all events toward reaching that objective. The whole is clear; so are the pieces that make up the whole. If one area underperforms, the board knows that other areas must do better than forecasted or new revenue-generating programs, cost controls, or exit strategies must be added to the puzzle. Real accountability exists between the board and senior management.

Commitment to Corporate Finance Principles and a Single Financial Perspective
In successful organizations, corporate finance principles are an integral component of management’s philosophy. The organization, the board, and the management team buy into and faithfully maintain a single financial perspective. This holistic approach organizes decision making by the entire leadership group around one and only one financial philosophy. The principle that has proven most effective is as follows:
Financial performance must be sufficient to meet the cash flow requirements of the strategic plan and, at the same time, maintain or improve the financial integrity of the organization within an appropriate credit and risk context.
Board members and executives use this principle to guide their decision making and measure their success. Their goal is to ensure that the organization’s financial condition at the end of each fiscal year is at least as good as and hopefully better than it was at the beginning of the year. Every financial decision is made with this principle in mind.
For example, if someone suggests making an acquisition costing $30 million, every member of the board and management team asks the question, “Will this acquisition allow us to better meet the cash flow requirements of our strategic plan and secure the competitive position of the organization?” If the answer is no, the leaders engage well-entrenched second thoughts about whether the acquisition is appropriate.
The organizing principle is written down to ensure common understanding. It is given to every board member, senior executive, and middle manager, and its implications are discussed in full during orientations for new board members or executives.

Commitment to Financial Learning
Leaders of financially successful organizations understand that financial leadership is possible only through acquiring the necessary financial knowledge. In many organizations, a strong continuing education process is necessary to teach and reinforce critical corporate finance skills. Sound financial management becomes a reality when a basic finance skill set is learned by managers deep into and throughout the organization.

A Planning Philosophy and Process
A planning philosophy and planning processes provide the platform for both long-term strategic and day-to-day operating decisions. The planning philosophy frames the business vision, strategy, financial goals and objectives, and tactics to achieve results. The financial plan is an integral part of management’s control of complex decision making and its direction of operating results. All major strategic opportunities are vetted through the financial plan. The capital allocation planning process is formal, serious, highly defined, and disciplined. The process identifies projects worthy of funding and funds those projects. Technical analysis is first class and performed throughout the organization.

Disciplined Execution of Plans
Senior management commands operations with a liberal dose of the right attitude. Day-to-day work in financially successful organizations is performed well. Managers follow best practice in revenue cycle and expense-control management. Compromises that damage financial performance are avoided.

Active Management of Capital Structure and Respect for Capital Markets
Through the active management of capital structure, financially successful organizations are continuously seeking ideas and approaches to lower the total present value costs of existing and future debt service. These organizations view their credit ratings as an asset and as a mechanism to improve access to capital and lower overall capital costs. They give high priority and attention to managing their relationships with the rating agencies, bond insurers, and other capital market constituents.
How much finance do  leaders need to know? More than they needed to know 15 years ago, or 10 years ago, or even 5 years ago. Clearly, to go round and round successfully in the circle game, they need to know more finance than ever before.