Twelve truisms of finance, from a CFO's perch.

• Author: Engebretsen, Arden B.
• Position: Chief financial officer

Twelve truisms of finance, from a CFO's perch People in finance, known for their ability to reduce information to its essence, often discover that some fairly clear-cut rules guide them in their work. Here are a dozen of my own:

1. Event forecasts are foolhardy. Their only benefit is to teach you humility. What we need to do is understand the significance of trends, not events.

2. We must develop organization structures that allow us to adapt to rapid change on a global basis. Change is our normal environment and we must learn to profit by it.

3. We need to understand the perspective of management, which is this:

   * Accounting is technical and not necessarily logical.

   * Financing reporting is often confusing due to the rapid changes in rule-making. And the FASB imposes new demands upon management in an attempt to achieve through disclosure an objective that financial reporting alone cannot provide.

   * Finance tends to impose restrictive conditions on management without letting it understand why. The ability to explain the problem and solution in simple terms is essential. Technical elegance is a cop-out.

   * As a result, the finance department claims it "gets no respect." Shouldn't we have to earn it by making a positive contribution to corporate success?

   * Finance people are finger-pointers. We must take ownership of and accountability for the business.

   * Finance people are both expensive and confusing. We appear expensive because management thinks of finance as part of the indirect budget. And the complex financial terminology we often use puts in question our true value. Management needs information it can understand.

4. On the other hand, we view management as technically inept. This is particularly true in large corporations, where finance is divided into highly technical segments. We must educate corporate management. If you can't explain to your nonfinancial associates what you're doing, you don't know your job very well.

5. Finance is a nonspecific term often misapplied. There are four distinct kinds of finance: accounting, control, financial analysis, and treasury. The accountant is the bookkeeper; he tells it as it is. The scorekeeping is the job of the CPA, who also handles information systems and control. The analyst is the MBA, who provides critical analysis and problem identification. The treasurer is the cash manager, tax advisor, foreign-exchange watcher, risk manager, bill payer, credit manager, provider of borrowed funds or...