At many larger companies, senior finance executives aspire to “get a seat at the strategy table” and help plan the future direction of the business. Many smaller companies face quite a different problem — when they map out business strategy, they must do so without a fully developed finance organization.
“Strategic Finance for Smaller Businesses,” a program taught by professors Samuel Hayes III, William Bruns Jr., and Henry Reiling at Harvard Business School, aims to address the special challenges of these smaller companies. (For purposes of the program, that’s defined as companies having annual sales anywhere between a few million and several hundred million dollars). The participant mix includes both finance and nonfinance executives — mostly from private companies, according to the program website.
According to Hayes, many small businesses lack a finance organization because for the nonfinance executives, it’s a “black box” — and “senior executives aren’t willing to make strategic decisions about things they don’t understand.” But after they attend the program, maintains Hayes, many participants set up their first formal finance department.
Mike Stoltzfus, president and chief operating officer of Bridgewater, Virginia-based Dynamic Aviation Group, says that the Harvard program allowed him to understand his CFO and speak his language. “[The program] gave me a new way to think about business,” says Stoltzfus. “Now I focus on P&L” and on enhancing the balance sheet of the $20 million (in revenue) aircraft operator.
His finance chief, Merle Zook, agrees. “It gave us a common language, the ability to look at things from a financial standpoint,” explains Zook. “Before, I’d be putting reports together, and they really didn’t mean much to him. Now we’re working on the same page.”
Stoltzfus says he plans to send two of his managers to the program. Zook himself hasn’t attended, but more from a lack of time than of interest. Perhaps what he would find interesting, suggests Prof. Hayes, would be the opportunity to step out of the “black box” and take some more-sophisticated approaches to finance. According to the program’s website, participants learn not only how to understand the flow of company finances, interpret financial data, and calculate ROI, but also how to assess the impact of financial decisions on profitability and how to balance profit, growth, and control.
The curriculum follows Harvard’s well-known case-study method to examine topics including whether to buy or lease equipment; costs and benefits of increasing plant capacity; when and how much to borrow; and deciding how much personal money to invest in a business.
Hayes relates one case involving a tire retailer whose distribution center had reached capacity. To build a new distribution center, the retailer’s executives approached a bank for a loan; considering the amount of the request, the bankers concluded that the company should bring in more partners. But after a thoughtful examination of future cash flows from the new distribution center, the program participants realized that the tire retailer needed to borrow considerably less money than it originally applied for. Loan granted, no new partners — and at least in this case, everyone makes out well.
“Strategic Finance for Smaller Businesses” will be presented at Harvard Business School on February 20-25, 2005.