Financial consulting for businesses is a matter for professionals.
Financial consulting does not necessarily mean financing; rather, it concerns what a business requires financially and/or monetarily and the reasons that guide decision-making in this area.
Financial consulting may relate to building cash flow statements, which we specialize in preparing, understanding the causes of financing difficulties, and raising additional capital based on the conclusions we reach.
Financial consulting can also operate at the family level. Examining family expenses relative to total income is an examination that requires in-depth analysis and proper expense classification. In other words, out of the total budget, the decision-making system must be examined based on expense classification in exactly the same way a business is examined.
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A work process is something that must be tailored to each business.
There are businesses in which cash flow is a decisive matter and therefore must be the focus.
There are businesses that have not defined a budget suited to their needs, that have an uncooperative bank, that lack control over the financial system, and more.
In other words, before determining the work process, an initial diagnosis is required in order to identify the source of the problem, and from there to build a work plan—or in other words, a process with defined objectives.
Financial consulting is composed of internal needs and data that characterize the business, improvement of the financial information system, financial needs arising from a given market situation such as competitors, new technology, investment – at both the current and future levels, and many other variables.
In other words, financial consulting may include several substantial issues that need to be addressed, even beforehand.
Let us take internal needs as an example.
Every business that employs workers or operates in a given market takes into account employee costs, which include a self-motivation mechanism and regulation.
Regulation sets certain conduct rules, such as taking a concentrated annual vacation.
On the other hand, internal motivation is a benefit that an employer grants its employees in order to increase their motivation and work productivity.
To this end, the employer may issue stock options, grant an annual bonus subject to targets, and so on.
In each of these cases, the financial system must be prepared for it.
Cash flow reflects the financial performance system but is not always responsible for it.
Let us take, for example, a situation in which customers pay late. Even though the cash flow is well-managed, the business cannot meet a given payment discipline and may run into difficulties.
On the other hand, an incorrect cash flow may lead to errors in judgment, such as issuing checks or paying suppliers at impossible times.
Therefore, it is important to identify the source of the difficulty, which does not necessarily have to be in the cash flow but is merely reflected through it.
Preparing a budget – the budget is the very heart of business planning, and it in fact determines the forecast.
A cash flow budget touches on both the budget and the cash flow arising from it, and therefore the two are interconnected.
Training the finance department staff and other departments – it is important to explain to team members how cash flow is managed and what its interfaces are with each of the business's departments.
Every employee in the business has an impact on the resulting financial system, and it is necessary to learn precisely what these are, by training employees in the other departments to a level of awareness of the importance of their conduct for the financial system.
Representation before banks – it is hard to say that banks are tolerant of small businesses, and their approach sometimes creates discrimination related to the size of the business.
Therefore, one must take into account that the rules of conduct with the bank are a delicate matter and, in most cases, even a given that cannot be changed in the short term.
A professional consultant knows how to talk to the bank and get the best out of it.
A financial business forecast – consolidates all business considerations and the budget for the purpose of building and forecasting cash flow
The Cowley Model enables forecasting derived both from internal considerations and assessments of the business's data and from assessments of external factors as a function of the overall market.
A business's success is ultimately financial success, and the model enables the projection of quantitative data to forecast success.
The model itself falls within the category of business consulting, but since its implications determine the degree of financial success, it is listed in this category as a basis for financial decisions concerning discount rates, interest, and risk levels.
As defined above, the financial field can relate to the level of the individual, the family, the business, the economy, and anything related to monetary performance.
When a financial consultant provides services to a business, they focus on the financial results the business generates and the oversight and control of the financial domain.
Let us take, for example, cash flow, managing the investment portfolio (nostro) of financial institutions, consulting in the pension field for employees, the financial implications of product pricing, and the like.
For illustration, financial consulting differs from a situation in which an engineer calculates the costs of a certain product, since the engineer performs measurements relating to production time, sales operation, direct and indirect labor cost, and the like.
The financial consultant will use the engineer's calculations and project from them onto the resulting level of the entire business and how this pricing affects the performance reports and/or the variables related to the monetary domain.
In the field of consulting there is a further combination, such as business consulting with financial consulting.
Let us take an example in which a business consultant or a strategist conducts a market survey concerning the introduction of a certain product to the market.
The conclusions of the business or strategic consultant concern the increase in sales, while the financial consultant will handle the financial or monetary results of the move.
Another example is from the field of banking.
Suppose that the expansion mentioned above requires taking out loans.
The financial consultant will handle the financing sources most preferable for the business and how the loans will affect the bottom line.
Likewise, a financial consultant will be the one to conduct a financial analytical assessment of the value for the investors in the venture, independent of the valuation usually performed by company valuators.
Many consultants regard business consulting, strategic consulting, and economic consulting as a field related to finance.
Although they ultimately manifest in monetary results, the areas of expertise are essentially different.
It is advisable to define the difference between the specializations or occupations in order to avoid a situation in which a person who is not knowledgeable in the field of finance provides consulting services in this field to businesses or companies, when the essence of the required service is entirely different.
Most business owners and stakeholders in the business field are interested in dealing with the bottom line.
When an economic consultant prepares a valuation model for a company, they take into account the discount interest rates as a given of the capital market, and their approach is general and based on certain assumptions that are not necessarily related to a specific investor.
A financial consultant who receives the valuation model for analysis will examine it differently and use the data of the investors they represent in order to arrive at the correct financial result from their perspective.
Suppose, for example, a valuation model that assumes a discount rate (composed of the risk rate and return) of 15% per year.
In other words, the investors are expected to receive an average gross return of 15% per year on the money invested in the business.
The financial consultant analyzes the investment portfolio of the investors in the venture (apart from the current examination).
Since each investor has an existing and preferred risk level, it is reasonable to assume that the final financial result of the venture's value will differ from that of the economic model and will be tailored to the investors themselves.
For example, the financial consultant's discount rate will stand at 30% due to the investors' unique data, which necessarily changes the value for those investors.
Financial consulting is a distinct field, and anyone who purports to call themselves a financial consultant would do well to understand what it entails.
Mixing the concepts may mislead those ordering the service, even though their intention is entirely different.
We hope that in this article we have succeeded in shedding light on the difference between the various types of consulting, particularly regarding the field of financial consulting and the need to choose a consultant suited to the field in which the service is required.
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