With the global economy slowing down, gas/petrol prices at a new high, and unemployment keeping up with the rate of inflation, businesses are starting to feel the burden of the consumer’s reduced ability to spend. With slumping sales and shying margins, businesses are starting to scale back on what now seems like careless expenditure, which before seemed like tax savings. Funny how a trend in the global economy can put a different spin on the temperament of spending by management on ridiculous items in big business, but then corporate world is full of, well, stupid activity.

With these trends in the economy and businesses, companies are pressuing Finance and Accounting Departments produce more useful, effective, and balanced numbers, that not only help the company look healthy to external parties, but keeps motivation up for the workforce and other direct stakeholders. Pressure mounting on Corporate Finance means that accountants now have to make more more of an effort to make sure the numbers are accurate and look like what management wants to see. That, is where it all becomes hairy.

With pressure mounting in Accounting Departments in Corporations across the United States and Europe, Corporate Finance Departments are increasingly using fancy accounting measures to try and make the situation look optimistic. Controllers and Finance Managers across the globe want to see low DSOs and high DPOs; the trend to track cash flow and cash efficiencies becomes commonplace; revenue recognition guidelines cross over into the gray area, and the hiring and spending on items that were once treated as as an expense are now looked at from the perspective of investments and assets. Such is the nature of finance management: it is driven and managed to please the boards, CEOs, CFOs, stockholders and investors.

But perhaps the greatest affect of Corporate Finance is one that is hardly ever discussed or talked about. In times of slowing global economies, the position of many accountans and finance managers in large corporation becomes a political one, and many will, and have to, for the sake of protecting their careers, venture over a gray area, where reports and numbers are produced that show NOT what the business is doing, but showing what management wants to see the business doing. In effect, this means that numbers are either fudged or presented inaccurately simply for the sake of keeping jobs or moving up the ladder. Let’s be honest: about 80% of all people in the Corporate World go up the ladder not because they know what the hell they’re doing, but because they try and please the boss, whether it’s for the better or the worse of the business itself.

That’s where the problem ultimately lies. It is in these times of recession that Coporate Finance can specifically point out the areas where the business can improve, where efficiency is not acceptable, where improvement is possible, and what things need to be like to maintaining increasing margins and growing sales. But instead of using the intelligence of accounting and finance, many businesses kill this one chance of harnessing the power of Corporate Finance, and kill it with their need to look good in front of a Board of Directors or Shareholders, which eventually kills the business. For this, amongst other things, it is imperative that Corporate Finance and Accounting Departments across Corporations stay focused and produce reports that accurately measure the position of their businesses, so they actually have a chance of riding out the recession, rather than looking to gain a promotion in a business that will shut down in the next five years.

Of course, Financial Planning and Analysis is not an area that many accountants excel in, which is why many may make the mistake of not looking past the next five years.

This entry was posted on Sunday, September 14th, 2008 at 9:44 pm and is filed under Accounting & Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.