Financial concepts for the technical professional

Finance is perhaps the key issue in management of the business. Sometimes it is very easy to fall into the trap of thinking that if there is a good product, well sold, then the financial aspects of business will fall into place. Nothing could be further from the truth. The fundamental purpose of a business is to create value for its shareholders. A business may well be assigned additional objectives such as job creation, economic development or other social goals, but it must create value if it is to be able to undertake these worthy additional goals in any continuing fashion. Business is thus about value creation for the investors; they put in cash, and expect a return on this investment. Timing expectations for the return may vary significantly; some will expect to get a stream of income perhaps every half year by way of regular dividends while others will hope to get a considerable lump sum from sale of the business (or a significant part of it) at some time in the future. Naturally, a business often has to address issues going beyond the narrow shareholder interests. Staff, customers, suppliers, lenders and the local community will all have a vested interest in its success, but their needs are usually also best served if the company is successful and profitable for shareholders.