Something’s Gotta Give #36: People vs finance

I was giving a ride to friend the other day. I always keep a book on the co-driver seat since it’s usually empty (yes, I know, not very eco-friendly to a drive an empty car daily – in my defense, public transportation in Cyprus is practically non-existent and I am scared of motorbikes, so…). My friend got in the car, picked up the book (so he could sit) and started riffling through its pages.

After a bit he asked: “Who’s is this book?” I said “Mine, of course.” “Why are you reading about people management, it has nothing to do with your field.”

Really now?

I am comparatively much younger than most other financiers who have written on the topic, but ask anyone with enough experience and they will tell you: The first meeting with the management of a business, actually plays a role in a finance-related project. And the funniest thing is that most experienced financiers don’t even insist on numbers in that first meeting.

Rather, what we are looking for, are qualitative queues: What’s the previous experience of the management? What is their past performance? What’s their posture during our discussions? (Do they seem to take the finance exercise – whatever nature this may have – seriously, or are they just waiting for you to leave?) Can they logically explain why their financial projections look the way they do?

A couple of quick examples drawn from my experience:

  1. I needed to value a company for transaction purposes. I was working for the buyer’s side. The management had prepared financials that showed the company would almost double in size within five years. I asked the management how they came up with these figures. They explained that they had invested a lot in R&D in the previous years and they could now offer products for which there was no direct competitor in the local market. They put the time in and (full of pride) gave me a tour of their premises. They allowed me to have a private discussion with their head scientist. They gave me the contact details of all their current and prospective customers, so I could have their views on the products. Last but not least, the general manager had risen through the ranks after working in various departments of the firm, something that showed he had a very well-rounded view of the business. Do you think they persuaded me with openness about the value of their business, or not? (They did);
  2. I was called in to assist with the restructuring of a loan that one of my clients had given to another business. The management where trying their best to persuade me that they were going to meet their targets easily. What I noticed however, was a company which had ridiculous amounts of staff turnover over the last three years. So, I thought, how would I feel had I been working here? Would I try to give my best day in and day out to help my employer succeed in meeting their targets, or would I try to cover my rear by doing the absolute minimum and staying below the radar out of fear of being targeted when the (seemingly inevitable) round of dismissals came? How much faith do you think I showed as a financier, in the numbers the management presented, when all qualitative evidence showed a company in disarray? (Not much.)

I may have started my career in finance, but yes, as years pass, I also pay more and more attention (and try to help businesses by focusing) on softer skills. People, marketing, sales, product, service, these are things that make a business and you can be sure that I pay the same amount of attention to these, as I do to numbers. I just wish more of my colleagues in the profession did so as well…