Don't Ignore these Non-Financial Losses of Poor Financial Management in your Company

Efficient Financial Management in corporate world is the backbone of any business. Now finance function is the most important business function in any organization and obviously everything starts from Vitamin M and if you are not able to manage your corporate finances you will always struggle to scale. But the sad part is it is most underrated business function. People will talk about marketing, people will talk about sales, and people now a days talk about use of AI technologies in their operations, people attend a lot of business automation workshops, social media workshops, but nobody talks about the importance of finance function and very few understand its importance. Nobody cares to build that financial literacy from business perspective.

In addition to the direct financial losses due to poor financial management, many of us tend to ignore the non-financial losses which probably have far reaching effect for any business organization but these non financial losses are always discounted while taking the business decision. What can these non-financial losses be?

Now the first one is Missed Business Opportunities: What is a missed business opportunity?? Whenever we are talking about a finance department which is not efficient, you will always struggle to provide timely and accurate financial data to support strategic decision-making. If you don’t have data which can help you to take data driven financial decision, how can you move? Let god save us. The result is always going to be missed opportunities for growth, partnerships, or investments that could have otherwise been pursued.

Let’s move now to the second non-financial loss. Employee Morale and Productivity: Employees within the organization may become frustrated and demotivated when finance-related processes are cumbersome, time-consuming and they are difficult to execute. This can lead to reduced productivity, increased turnover, and a negative work environment. Now if the productivity is low, employee turnover is high, work environment is negative, Profitability in your business will go down? Off course it is going to take you down.

The next non-financial loss is Supplier Relations: If you are not efficiently managing your company’s finance department, the outcome is you are not able to pay the suppliers on time. The ultimate result? Strained relationships with suppliers, disrupted supply chains and loss of credibility.

The next is Inaccurate Financial Forecasting: An inefficient finance department may struggle to provide accurate financial forecasts. This can make it challenging for the company to plan for future growth, manage cash flow effectively, or secure financing when needed.

Now the next is Reputation Damage: Once the reputation is gone, everything is gone. Inefficiencies in financial reporting, accounting errors, or financial scandals can severely damage a company's reputation. A tarnished reputation can be challenging to rebuild and may lead to a loss of trust from customers, investors, and stakeholders.

Operational Inefficiencies: Operational inefficiencies are always going to eat up your strategic time, which you can otherwise invest in business. Finance-related inefficiencies can spill over into other areas of the business, causing operational disruptions. For example, delayed payments to suppliers may lead to disruptions in the supply chain, impacting production and delivery schedules.

Hurdles in availing finance from the investors, financial institutions and banks: With inefficient financial management, you will always struggle to raise funds. Now understand this that the capital is the lifeline of any business and if you want to expand your operations, invest in machinery you will raise the funds from banks. But there is distorted financial management, then you will not be able to raise the funds from banks and private investors.

While these non-monetary losses may not have an immediate, quantifiable impact on the balance sheet, they can have long-lasting and far-reaching consequences for the business. Therefore, it's essential for SMBs to invest in streamlining their finance department operations and ensuring that financial processes are efficient, accurate, and compliant with relevant regulations.