There are many definitions of culture. From a business perspective I like the definition of culture as “the beliefs and behavior that determine how people interact and handle transactions.” I like this definition because it includes the word “transactions.” Transactions are unavoidable within businesses. Transactions occur when businesses sell their products or services. Transactions occur when businesses support their people and processes. As a result businesses need a culture that creates value from transactions.
Creating value from transactions comes from an FP&A culture.
Selling products or services validates the value propositions of businesses. Value propositions like accessible, durable, and insightful are areas of emphasis from people who work within the selling functions of businesses. This emphasis can be measured by statistics like net income and net cash provided by operating activities. These statistics can provide insight into how good or bad businesses are in fulfilling their value propositions. Fulfilling value propositions is based on transactions that result in revenues, expenses, and cash flows. The value created from transactions arise from thinking and learning about how to provide as well as promote products or services. An FP&A culture can establish thinking and learning about selling.
An FP&A culture can establish thinking about selling by determining how revenues will be earned. Revenues can be earned by providing services, licensing products, reselling products, and manufacturing products. The ways to earn revenue have distinct characteristics that project value propositions and affect income as well as cash receipts. An FP&A culture also can establish thinking about selling by determining how products or services will be promoted. Promotion can be done through a system of people, process, and technology. Promotion through this system will project value propositions and affect income as well as cash disbursements. Thinking about selling is not a simple task.
An FP&A culture can establish learning about how good or bad selling is. Perhaps the best way to learn about the selling process is through ratio analysis. Ratios like gross margin percentage can provide insight into revenues created from products manufactured or purchased. Ratios like asset turnover can provide insight into revenues earned from assets like buildings, equipment, and intellectual property. Current and quick ratios can provide insight into relationships with stakeholders like customers, employees, and vendors. These ratios serve as learning tools to acquire insight into relationships among value propositions, revenues, expenses, and cash flows. Learning about these relationships can stimulate continuous improvement initiatives dedicated to create value and wealth.
An FP&A culture enhances the value proposition from the selling function.
Supporting people and processes within businesses comes from a number of sources. An accountant supports businesses through tax return preparation and filing. An attorney supports businesses through insight into laws and regulations. A technology specialist supports businesses through education about hardware and software. The sources who support people and processes within businesses are not the primary reasons for people buying the products or services that businesses offer however the sources have an impact on measurements like income and cash flows. As a result businesses need to think and learn about how support will be provided and their effects on the business. An FP&A culture can establish thinking and learning about support.
An FP&A culture can establish thinking about how support will be provided. Support can be provided by people like employees or consultants. Support can be provided by technology like equipment and software. In order for support to be provided it must be acquired and the acquisition leads to transactions. An FP&A culture can focus on thinking about the most effective relationship between the methods of support and their financial effects.
An FP&A culture can establish learning about how support is provided. Support can create financial benefits like increased revenues and/or decreased expenses. These benefits can be established through financial plans, e.g. budgets and forecasts, and compared to actual results. The comparison serves as a way to learn about how support is provided. From learning businesses can make decisions about their support functions.
Like the selling function the actions within the administrative function can be enhanced through FP&A.
My work in private industry allowed me to experience certain cultures. I experienced engineering cultures and sales cultures. I didn’t experience FP&A cultures which is odd. I consider it odd because of advice an angel investor gave to entrepreneurs: I don’t care what your idea is; I want to know how I’m going to make money. Making money is important for not only startups but also existing businesses. Businesses regardless of age exist due to the exchange of money. The exchange of money should form beliefs and behavior that determine how people interact and handle transactions, i.e. an FP&A culture.
Remember… the existence of transactions creates the existence of an FP&A culture.