I’ve encountered and continue to meet senior managers and entrepreneurs who genuinely believe that financial management isn’t crucial for building a successful company. This perspective is flawed. Many operate under the misconception that finding the right idea, crafting a business model, negotiating with counterparts and assembling an operational team negate the need for managing finances, at least during the initial years of a company’s existence and, often, not even in the first decade.

I’m convinced that this mindset is a relic of the post-Soviet management model. Those familiar with that bureaucratic system became exhausted by planning but never truly grasped the intricacies of sound financial calculation and organized budgeting. In that environment, where competition was scarce and profitability often obscured financial scrutiny, there was little impetus for implementing robust financial management: competition was absent, and the profitability was such that money was not counted. Additionally, the explosive economic growth and lack of competition in various sectors were periodically disrupted by crises and currency devaluations. The absence of crisis management experience hindered the development of economic planning habits and systematic financial management for most economists.

During the first two decades of Russia’s market economy development, profitability, often achieved through unofficial financial schemes and legal structures for tax optimization, served as the primary yardstick for financial management effectiveness. The ability to negotiate financing with banks and other financial institutions was deemed a critical skill for financial managers. Meanwhile, factors like the quality and depth of management accounting and reporting, effective liquidity management, internal process organization and automation, and the implementation of transparent internal control systems – parameters widely accepted as key indicators of financial director effectiveness in Europe and North America – were deemed inconsequential, and sometimes even detrimental, to the businesses grown on the former Soviet grounds.

Few would dispute the notion that a commercial enterprise must strive for financial independence in the foreseeable future. Even in the case of esteemed yet loss-making companies, particularly in the technology sector, eventual profitability and steady, sustainable growth over a predictable period are pivotal factors in determining a company’s value. And achieving this is inconceivable without competent financial management.

During the first two decades of market reforms, Russian enterprises’ senior management displayed little interest in establishing effective financial management practices. Similarly, most entrepreneurs remained indifferent due to either shortsightedness or tacit approval from their enterprise’s leadership. It sounds unbelievable, doesn’t it? Yet, that’s precisely how it was, and several factors contributed to this apathy.

Why bother constructing a transparent automated internal control system when tax authorities could effortlessly uncover illegal tax optimization methods through it? Why adopt long-term budgeting and forecasting systems when top-managers found it expedient to base decisions on situational assessments, believing that high results and substantial profits were a result of their foresight, while failures were attributed to the inability to plan effectively amidst Russian instability? Why overhaul the mindset and motivation of midlevel managers to adopt a customer-oriented, competitive service approach when, for the past two decades, the prevailing approach had sufficed, and retrained managers might simply leave to establish competing businesses?