are specifically designed models to illustrate what happens financially in a business.
They show what happens to the money in a business when a given scenario takes place.
Some of these models are built up from scratch with participants. In that way they are able to identify the cash elements in a business and they can see how they are reported on in the fiancnail statements.
More importantly they will visualize what happens to the elements when business decisions are made.
With this insight a business leader is empowered to make more informed decisions and thereby achieve more success.
I personally found that even though I had formally studied in the finance field, I obtained far more insightful understanding of business finance by developing these models.
With that knowledge I was able to highlight to some of my peers where our decisions we had made were poor and how we could avoid making such decisions again.
When I applied the teachings to given difficulties we were facing as a company I was able to help turn the strategic direction of the business around onto a more fruitful path.
In one such case the team and I were able to triple the size of the business successfully. Not only did we succeed in that goal but we were able to improve our profits by more than 800%. All of this within a period of less than two years !
Participants are then taken through a process to deconstruct the models. By breaking up the reports again a different perspective is achieved. Suddenly standard conventions and accounting formulae were challenged and a deeper business insight was gained.
Many businesses get themselves into financial difficulties through their leaders making poor daily decisions. What seemed a sound strategy at the time unravels to become a mine field of pitfalls that has a negative impact on its future viability.
In many cases the financial statements were available to the decision makers. They even at times personally may have been involved in compiling some of the reports, yet the business still faced closure as a result of the decisions they made.
This phenomena is not only prone to happen to new or young businesses, where it could be argued that the strategy was still developing.
An obvious question posed by many.
“Surely its only a problem in the start up phases of a business and if one gets past a certain point, things will pan out naturally and the danger will dissipate?”
Alas, I found that quite the contrary to be true, as these examples below illustrate and I personally was privileged to witness each first hand.
I either worked for the company involved or I helped them later in their dilemna, by advising what possible courses of action to take to get out of the hole that they were in.
I have come across many entities that have been around for years, that suddenly find themselves facing tough times. This can be due to circumstances outside of the organization or decisions made from within that leadership structure.
What to do in these situations to rectify this is what is important and these models will help to illustrate the solutions which need to be implemented.
These do not form part of any scientific study or analysis, but rather are what I witnessed first-hand.
Some of the leaders involved in them are still feeling the effects of their poor decision making today.
Some people have wondered if these companies were audited properly?
Many students have asked me this question.
“Surely the auditors would have seen the problems before any one else!
One would have thought that this would have been the case. However, in the auditors defence ín each case, they did not really do anything wrong.
The problems I believe were multifold and having audited financials does not prevent the dangers from affecting the business.
Firstly, there is the problem of our enfatuation with the BRHC principle.
Secondly, there is the problem of the limitations within the accounting language itself.
Value does not necessarily translate to what something is worth!
I was lucky enough to work for a large multi-national group, that at the time adopted some of Joel Stern’s philosophies on Econimc Vale Add.
This I later combined with the theories on Throughput accounting that I had been exposed to in another large multi-national I worked for.
This in turn gave rise to me designing another model.
The aim is not to make anyone an expert on
but rather the goal is to use these models to illustrate concepts so that you can avoid making the same or similar mistakes.
