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How can lean finance principles help you make better financial decisions?

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Lean finance principles are a set of practices that aim to reduce waste, improve efficiency, and increase value in financial management. By applying lean thinking to your financial decisions, you can optimize your cash flow, minimize your risks, and maximize your returns. In this article, we will explore how you can use lean finance principles to make better financial decisions in six steps.

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Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA

Transforming future leaders in Accounting and Finance: 12 Years of Corporate Experience & Associate CIMA & CPA Member…
Clint Engler

CEO/Principal: CERAC Inc. FL USA..... ?? ????????Consortium…

1 Identify your value proposition

The first step in lean finance is to define what value you are creating for your customers, stakeholders, or yourself. Value is the benefit that your product, service, or investment provides to the end user. By identifying your value proposition, you can focus your financial decisions on what matters most and eliminate unnecessary costs or activities.

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Clint Engler

CEO/Principal: CERAC Inc. FL USA..... ?? ????????Consortium for Empowered Research, Analysis & Communication
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Lean finance cuts the fat (waste) from your decisions: Value focus: Identify what truly drives profit and prioritize efforts there. No more chasing shiny objects! Efficiency boost: Streamline processes to save time and money. Think streamlined reports, not spreadsheet acrobatics. Risk reduction: Minimize non-value activities, like redundant tasks, to prevent errors and wasted resources. Agility unlocked: Adapt quickly to market changes with flexible processes and data insights. No more being caught flat-footed! Decision clarity: See the bigger picture with accurate, real-time data. Ditch the gut feeling roulette. Lean finance helps you make smarter, faster financial decisions, propelling you from bean counter to strategic mastermind.

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Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA

Transforming future leaders in Accounting and Finance: 12 Years of Corporate Experience & Associate CIMA & CPA Member, dedicated teacher with 7 Years of experience
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Identifying your value proposition is essential as it is about understanding the core benefit your product, service, or investment offers to customers or stakeholders. This clarity helps direct your financial decisions towards activities that enhance this value, cutting out un-needed costs. For example, if you run a local bakery, your value proposition might be delivering high-quality, breads. Knowing this, your financial decisions should focus on sourcing the best ingredients and perfecting your baking process. By centering your strategy around your value proposition, you ensure that every dollar spent contributes directly to what makes your business unique and valued by your customers.

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2 Map your value stream

The second step in lean finance is to map your value stream, which is the process of how you deliver value to your customers, stakeholders, or yourself. A value stream map is a visual tool that shows the inputs, outputs, and flows of your financial activities. By mapping your value stream, you can identify the sources of waste, inefficiency, and variability in your financial management and find ways to streamline or improve them.

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Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA

Transforming future leaders in Accounting and Finance: 12 Years of Corporate Experience & Associate CIMA & CPA Member, dedicated teacher with 7 Years of experience
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Mapping means visually (not literally or can be literal as well) tracing how value is delivered in your financial activities. This helps in understanding the flow - from inputs to outputs - and pinpointing where inefficiencies or waste occur. For instance, if you own a small tech company, create a value stream map showing how investments (like in new software or marketing) lead to outputs (like increased sales). This map might reveal unnecessary steps or costs that do not contribute to end value, like redundant software subscriptions or ineffective advertising channels. This approach not only makes your operations more efficient but also enhances your financial decision-making.

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3 Implement pull systems

The third step in lean finance is to implement pull systems, which are mechanisms that regulate the flow of resources based on the demand of the customers, stakeholders, or yourself. A pull system ensures that you only produce or consume what is needed, when it is needed, and in the amount that is needed. By implementing pull systems, you can avoid overproduction, inventory, and idle capacity in your financial management and optimize your cash flow and working capital.

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4 Adopt continuous improvement

The fourth step in lean finance is to adopt continuous improvement, which is the practice of constantly monitoring, measuring, and improving your financial performance. Continuous improvement involves setting clear goals, collecting data, analyzing results, and implementing changes based on feedback and learning. By adopting continuous improvement, you can enhance your financial efficiency, effectiveness, and adaptability and achieve your desired outcomes.

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5 Empower your team

The fifth step in lean finance is to empower your team, which is the principle of giving your employees, partners, or collaborators the authority, responsibility, and resources to make financial decisions that align with your value proposition. Empowering your team involves creating a culture of trust, collaboration, and accountability and providing training, coaching, and recognition. By empowering your team, you can leverage their skills, knowledge, and creativity and improve your financial decision-making quality and speed.

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6 Seek customer feedback

The sixth and final step in lean finance is to seek customer feedback, which is the process of collecting and analyzing the opinions, preferences, and satisfaction of your customers, stakeholders, or yourself. Customer feedback helps you understand the needs, expectations, and perceptions of your value proposition and how you can improve it. By seeking customer feedback, you can validate your financial assumptions, test your hypotheses, and discover new opportunities and challenges.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA

Transforming future leaders in Accounting and Finance: 12 Years of Corporate Experience & Associate CIMA & CPA Member, dedicated teacher with 7 Years of experience
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Consider the holistic impact of your financial decisions. Reflect on how these decisions align not just with immediate goals but also with long-term sustainability. A local organic grocery store might focus on cost-cutting in the short term but should also consider investments in sustainable practices that ensure long-term customer loyalty and environmental compliance. Do not overlook the power of digital transformation in finance. Engage your team in financial strategies. Their on-the ground insights can be invaluable in identifying inefficiencies and innovating solutions. Each of these considerations plays a vital role in creating a comprehensive, effective lean finance strategy.

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How can lean finance principles help you make better financial decisions?

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1 Identify your value proposition

2 Map your value stream

3 Implement pull systems

4 Adopt continuous improvement

5 Empower your team

6 Seek customer feedback

7 Here’s what else to consider

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