Money 101

Recently, I've been giving business and financial institutions a bit of a hard time, so it only seems fair to add a little perspective to the discussion. Though to many it seems that business is only about money, it is nevertheless worth asking ourselves what is the real role of money in business.

Perhaps an analogy can help. Strategy is not just a business concept, it is an everyday concept as well. Strategy, in a certain sense, is the answer to the simple question we have all been asked: "What do you want to be when you grow up?" Each of us makes decisions early in life that determine the course of actions leading us into certain fields and careers. Any life counsellor will tell you that the person who is following their heart (doing what they like) is the happier and more productive person. We look to the future, fix our eyes on a goal, and then continuously work towards it. That is thinking and acting strategically. The only real obstacle to it all though is staying alive. Life is, after all, an exceedingly risky undertaking.

In the business world, staying alive is objective #1 ... not strategy #1. Staying alive is the objective, being something when we grow up is the strategy. In addition to shelter and clothing, we all have to eat, that is, we need food to survive. In the industrialized world, many people used to grow their own, but the specialization of labour has removed most of us from food-production, so we must go elsewhere to get our food. Businesses, in a very strong sense, mirror their creators. What is it, then, that any business needs to stay alive, to live to fight another day in the sometimes dog-eat-dog of global commerce? Yes, money.

There we have our analogy: money is to business as food is to people. Today, we have become divorced from our sources of food; we do not always eat what is good for us. Many people are overweight, others are starving. Certain things are in abundance in some areas, non-existent in others. In the western world, a certain knowledge of nutrition, then, is a good thing. What to eat, how much to eat at what time of day or in which season, different ways of preparing food that make it more digestible and useful to our bodies are all good things to know. Those who inform themselves and act accordingly tend to lead longer, healthier, and, in the end, happier lives. Similarly, in business, setting reasonable profit margins, building reserves (retained earnings), maintaining a "healthy" level of debt, and making acceptable, suitable, and feasible investments are ways toward a longer, healthier business life.

Finance, that is, knowing how to deal with money in the context of business, is not what business is all about. Business is about producing the better product, providing the better service and fulfilling market needs. To do this, however, we need to understand finance so that we can lead the kind of business life that enables us to be whatever it is we want to be when we grow up.