The rivalry between firms’ sales and financial departments is real. Rather than seeing each department as a player with a different position in the same team, erroneous perceptions lead many to view them as opposing teams in the same sport. However, if a firm wants to achieve competitive advantage, it must understand the critical roles finance and sales play for each other.
TOP Line Vs. Bottom Line:
According to Frank Cespedes of Harvard Business School there are “Two ways that a company increases economic profit: 1) by investing in projects that earn more than their cost of capital, and 2) reducing investments in activities that earn less than the cost of capital.”1 Although sales executives produce revenue for their firms, they also increase cost of capital by their sales efforts. Sales expenses, which totaled 900 Million in the U.S. alone, must be managed in order for a company to succeed. This is why firms need a CFO who can create profit by setting goals and creating plans around increasing economic profit by managing these needed expenses.
Information and Action:
Every profitable action requires accurate information. CFOs and their teams are a critical component to successful sales efforts because they run regular reports to see the profitability of each market, customer, and initiative. If their analysis shows that one of these areas is not profitable, the CFO will be able to provide insights that lead to needed corrections.
CFOs use the projections of the sales department to develop short-term and long-term forecasts. the finance department must deal with the organization’s accounts receivable account and uncollectible debt. If the organization’s revenue comes primarily from credit sales, it may experience cash flow problems in the future 2. Firms need financial expertise to make sure accounts receivable correlate to revenue received and operating expenses. The value of a CFO is making sure businesses grow within their means so that they can create consistent profits.
In today’s world, data equates to competitive advantage. By working closely with each other, sales and financial departments can provide each other with data that will lead to strategic actions and greater levels of profitability. Ultimately, Finance is able to provide more analysis, more insights and more recommendations so that people are aligned with what drives the business forward.