When a company spreads a financial culture within its organisation, it is not just improving a management process. It is also strengthening an intangible asset that contributes to its growth in value over time, with the added benefit of improving its relationship with banks.

This is an indispensable asset for any SME aiming for financial independence. Some entrepreneurs ask, “If the goal is to sustain the company through self-financing, why continue to invest time and energy in relationships with banks?”

Why nurture a relationship I could do without?

The answer lies in a mechanism that only becomes clear in the long term: only companies with a solid financial structure and healthy finances have a balanced and lasting relationship with credit institutions. Companies with excessive debt, on the other hand, pose a risk that limits their ability to fulfil their obligations — and this inevitably affects their relationship with their bank.

A useful analogy is that a bank treats a company like an investor buying a bond. The bank expects two things: periodic interest payments and the return of the principal at maturity.

If the company achieves its earnings targets, this demonstrates its ability to manage its operations, just as a low-volatility stock signals a low risk profile. Debt, by definition, has a beginning and an end: companies that respect this principle present themselves to the bank as low financial risk, according to the same criteria that the bank applies to its own supplier/client relationships.

What happens when debt is continuously renewed?

The flip side of the coin is equally clear. When excessive debt pushes risk to the point of jeopardising regular interest and principal payments at agreed maturities, the relationship with the bank suffers.

To understand the significance of this shift, it is worth revisiting the bond example. What would happen if a company, unable to repay the principal at maturity, asked investors to renew their investment, perhaps promising a higher interest rate? The investor would effectively lose autonomy. Moreover, there is no guarantee that the higher return would compensate for this loss of autonomy.

The same thing happens to the bank: while it remains an external lender remunerated at a fixed rate, it loses its negotiating autonomy. While it can raise the agreed rate, it cannot change the nature of the contractual relationship that binds it to the company. Of course, companies are not bonds — the variables involved in management are much greater, and the results are much more uncertain. For this reason, a continuous and constant flow of information with the bank is not just an option, it is an integral part of the relationship.

The Impact Beyond the Bank

One important point that often goes unnoticed is that when a company becomes the subject of a sale negotiation or investment by an entrepreneur, the entrepreneur will always rely on a private equity advisor.

A company that rigorously applies the supplier/client logic to its banking relationship is highly regarded by the bank. This consideration extends well beyond the bilateral relationship to potential investors and their advisors.

Every investor relies on a financial advisor during the acquisition negotiation phase, and this support continues until the final payment is made. One detail that many entrepreneurs overlook is that financial advisors working in private equity have a banking background and use their contacts in the credit system to gather information on the target company.

If the banker interviewed can provide precise answers because they truly know the company and its sound financial management, the company will be perceived as having a higher value than that emerging from financial statements or public information. However, if the banker is unable to answer precisely and remains vague, the assessment will be more limited and the company will be penalised.

The bottom line

A widespread financial culture doesn’t just produce better numbers; it also influences management decisions by increasing the entrepreneur’s ability to interact with other stakeholders and encouraging collaborators to consider the economic and financial aspects of every decision. It builds a reputation for the company, even when the entrepreneur isn’t present — during due diligence, sales negotiations or evaluations that also depend on what the bank says or doesn’t say.

Developing this culture isn’t a formal exercise; it’s one of the most profitable and least noticed investments a small or medium-sized business can make.

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I have seen small and medium-sized businesses double their revenue in eight years without updating the organisational chart. This is not due to forgetfulness, but to prudence. Moving someone means renegotiating balances between partners, altering informal hierarchies and offending established sensibilities. It’s easier to avoid changes.

The problem is that a structure which doesn’t evolve alongside the company becomes a hindrance. Inefficiencies silently accumulate. Responsibilities overlap. Decisions take longer than necessary.

However, there is a way to approach the organisation that does not feel like a trial to those involved. It’s called Process Value Analysis and can be applied to the system by H. James Harrington, who described it in his work, Business Process Improvement (1991).

Harrington and Process Value Analysis

James Harrington was among the first to argue that improving business efficiency does not involve directly intervening with people, but rather with the processes in which they work. His insight was simple yet powerful: before reorganising who does what, it is essential to understand which activities create value and which do not.

The model classifies all a company’s activities into three categories:

RVA (Real Value Added): activities for which the customer pays. These activities directly relate to what the customer purchases, such as manufacturing, providing the service and delivery. Any activity that does not contribute to this goal may be reviewed. BVA (Business Value Added): activities that are necessary for the company’s operation but which are not perceived as having direct value by the customer. These include accounting, regulatory compliance, internal controls and payroll management. These activities are essential but must be streamlined. NVA (No Value Added): activities that add no value to either the customer or the company. Examples include waiting, duplication, redundant checks, avoidable error corrections and unnecessary movement of information or materials. These must be eliminated.

The strength of the model lies in the fact that the analysis focuses on activities rather than people. No one is evaluated. The process is improved.

Four steps to applying it in an SME

The implementation process does not require external consultants or specialised software. It requires time, a methodical approach, and a willingness to question what is usually taken for granted.

1. Map the value chain. Start by identifying the company’s main processes, from customer order to delivery and from supplier purchasing to payment. A perfect diagram isn’t necessary. A list of the activities that make up each process, in the order in which they occur, is sufficient.
2. Classify each activity. Ask Harrington’s question of each activity on the list: would the customer pay for this if they knew about it? If so, it is an RVA. If it is necessary for the company, but the customer does not see it, then it is a BVA. If it is neither, it is NVA.
3. Quantify the weight of each category. Once the activities have been classified, estimate the time or cost absorbed by each category. In some companies that I have analysed, NVA activities range from 20% to 40% of operating time. When this data is presented objectively to management, it has an immediate impact.
4. Plan improvement actions. NVAs should be eliminated. BVAs should be optimised, and automated where possible and cost-effective. RVAs should be protected and expanded. At this stage, the analysis becomes a reorganisation project, based not on hierarchies but on value streams.

The administrative manager plays a key role in this analysis

In an SME, the administrative manager is often best placed to carry out this analysis. This is not because they are process experts, but because they have something no other manager has: cross-departmental visibility, enabling them to intervene impartially.

They can make a significant contribution, especially in processes that connect different departments or functions. They know how to intervene in the information system to improve the use of this often-undervalued resource.

With the Harrington model, this becomes a tool. The administrative manager can document and classify activities and present them to management, showing where value is being created and wasted using data.

This approach has an additional advantage in that it depersonalises the discussion. When reorganisation is proposed based on a process analysis, resistance to change is reduced. It’s not about saying, “Mario works poorly.” It’s about stating that “this process accounts for 35% of activities with no added value”.

A shift in perspective that produces concrete results

Process Value Analysis is not a magic tool. It’s a method of seeing more clearly how a company transforms its resources into value.

When applied seriously by an SME, the results are tangible. Processes are simplified. Responsibilities are distributed more consistently in line with actual workload. Performance evaluations improve. The formal organisation reflects the actual organisation.

Often, what seemed like a people problem turns out to be a design problem. It’s a problem with a solution.

The Rubik’s Cube of administration has a solution. This is one of its pieces.

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Kenning Consulting supports small and medium-sized businesses in strengthening their administrative function and implementing practical management control tools tailored to their needs.

What I’m proposing — an administration that performs management control, maps processes, supports operational functions and builds relationships with banks using structured data — seems to require skills that exist in much larger, more structured companies.

The answer is no.

The reason is simple: in an SME, multitasking isn’t a limitation. It’s the model.

The Specialist Paradox

Imagine we want to fill all the value-added roles in a structured company: controller, risk manager, financial planner, legal representative and a management consultant. Five roles. Five salaries. Five people to coordinate.

For a small to medium-sized enterprise (SME) with 20–50 employees, this option is not only expensive, but also unsustainable. Those five people could not work full time, and the organisation would end up with more problems than it set out to solve.

Yet the need for those skills exists. Data is needed. Analysis is needed. Risk management is needed. A financial plan is needed.

So how do we resolve this paradox?

The AM as a Point of Integration

An SME’s Administrative Manager (AM) cannot be just the head of one important function. Due to their position and access to information, they have the most comprehensive view of the company.

Sales data, personnel costs, supplier invoices, the financial situation and credit trends all pass through their desk. No other function has this comprehensive perspective. No other function is so naturally positioned to connect the various points on the map.

This is the starting point. The aim is not to turn the AM into a super-specialist. It’s about helping them utilise their existing resources — data, access and vision — to provide the company with something it wouldn’t otherwise have: an internal navigation system.

I often use the metaphor of a compass. Management control is like a compass: it doesn’t take the place of the captain in guiding the boat, but navigating without it relies on luck. The AM is the person who holds and interprets the compass. They do this by experiencing the boat firsthand.

What changes in practice

Three concrete changes occur when the AM broadens their focus.

1. From data to service. The information that the administration department collects every day ceases to be a passive archive and becomes a working tool for colleagues in other departments. The sales manager can see which customers have the greatest impact on working capital. The production manager understands how costs translate into margins. People work with greater awareness.

2. From reacting to forecasting. An administrator who simply records what has already happened is always playing catch-up. When they regularly analyse data — even in a simple way, without sophisticated tools — they begin to see warning signs before they become problems. This is the value of planning, even in its most basic form.

3. From cost to performance. Administration is often perceived as a pure cost centre. However, when it starts to produce useful information, improve processes and reduce inefficiencies, its perceived value within the company increases. It becomes a function that generates results and supports growth.

The necessary condition

There is, however, a necessary condition that doesn’t concern tools, but people.

The AM must have the time to do this work. Time can’t be created out of thin air — it must be freed up. This can be achieved by mapping and optimising administrative processes, delegating routine tasks to team members, and using a shared deadline calendar to reduce peaks and avoid last-minute rushes.

In other words, we need to change our priorities and focus on those who are committed to generating revenue, which creates income and cash flow. This shift in perspective requires a well-organised administration department to provide valuable services.

This is the order I always recommend when guiding an SME through this process. It doesn’t start with management control. It starts with organising the function. An AM who is overwhelmed by obligations doesn’t have the mental space to conduct analysis, so it’s pointless to ask him/her to do so.

A valuable role

In the SMEs I follow, when this change of perspective occurs, the benefits are not confined to the administrative office. They spread. The other functions work better. Decisions become more data-driven and less intuitive. The entrepreneur has an internal point of strategic reference.

This is not an immediate process. It requires time, a methodical approach, and a willingness to question established practices. However, it is a path that SMEs can follow, and when executed effectively, it can transform the quality of company management in a lasting way.

The AM does not have to become a superhero. They must understand what operations staff need to do to work better and translate that into revenue and cash flow.

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Kenning Consulting supports small and medium-sized businesses in strengthening their administrative function and introducing practical management control tools adapted to their real needs.

And, like solving a Rubik’s Cube, it doesn’t require genius; it just requires the right method.

The criterion that changed my way of working The criterion that I followed, and which allowed me to achieve excellent results during many years of working in SMEs, was to be guided by internal customer service. This means providing services to everyone along the company’s value chain, from production to sales and from logistics to management.

I was lucky to begin my professional journey as a controller with an enlightened entrepreneur like @Giordano Bruni, who made me realise the advantages of embedding this criterion in my professional DNA. This had a profound influence on my administrative work, pushing me to adopt a simple communication code free of accounting and tax technicalities.

This is not to say that the technical aspects don’t matter — they do. It’s just that those who work in production, sales or logistics don’t need accountant language; they need clear information to take good decisions. And if that communication code is the prevailing one, it ends up influencing the way you express yourself.

From complexity to order: the Rubik’s Cube

I use the metaphor of a Rubik’s Cube to describe this journey. At first glance, it may seem chaotic — 54 tiles of six different colours in seemingly random positions. But with the right method, each tile finds its place. The end result is an orderly, coherent and functional system.

The administration function of an SME works in exactly the same way. There are many issues, but if you approach them with the right criterion, they all find their place in a coordinated whole. 54 weeks, 54 tips, a complete system

Starting this week, I’m launching a weekly publication programme: 54 tips for good SME administration, one for each tile of the cube.

The six faces correspond to the six major themes:

1. Administration — reviewing the function to free up time and create value
2. Management control — measuring performance to improve decision-making
3. Financial management — managing invested capital to ensure sustainable growth
4. Legal services — reducing risk with straightforward, practical tools
5. Information systems — using data as a strategic lever
6. Leadership — driving change with method and motivation

The content will be published every Wednesday on LinkedIn. Every Monday, it will be explored in more detail on the Kenning Consulting blog.

My experience confirms that, when everyone involved in management uses the value creation criterion as a point of reference, it supports a path of balanced, profitable and sustainable growth.

The Rubik’s Cube can be solved. Let’s get started!

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The sharp increase in the purchase costs of raw materials and finished products, as well as the supply cut-off of some comodities have different and competing causes. The proximity in time with of these developments, marks an increasingly discontinuous and turbulent environment, which has put the production systems of many countries under great strain.

What measures can be taken to deal with these global events ? If, due to the magnitude and frequency, it is not possible to completely eliminate the negative effects of such events, every company, even small ones, must take action to better manage its operational levers. To this end, risk assessment is of strategic importance in business management in order to identify the appropriate measures to be taken when a harmful event occurs. It is also good management practice for a SME which, in order to have practical solutions that can be applied quickly, needs to analyse its transformation processes in detail to understand where and how to intervene. This evaluation may start with an analysis of the production process with the aim of identifying critical aspects that may hinder its smooth running. If the goal is to reduce risk, we might consider replacing overseas suppliers with domestic or European companies to reduce the overall cycle time of the supply chain and have more control over our trading partners. Every company must initiate a detailed analysis of its value chain as soon as possible in order to adequately prepare for the appropriate changes, which take a medium to long time. This is the only way our companies will be able to benefit from the strategic policy measures that the various EU countries are applying to remedy the distorting effects of a global economy caused by a lack of economic policy decisions.

In the short term, it is important to look at the production process as a whole, and avoid a partial evaluation that would take us far from the solution. Indeed, ignoring for the sake of simplicity the implications of ISO certification, transformation processes have at least two critical aspects to consider such as the quality of the components used and their integration and specialisation with plant and machinery. The soundness of the supplier is also an important feature, as is having a good supply contract to support the business relationship which binds the parties to the agreed conditions. These aspects have wider implications than just the purchase price, and should be examined before making changes in the transformation process by replacing a component.

If you would like more information on Kenning Consulting's project to improve your SME's supply chain click HERE and you will find useful tips that you can also apply yourself.