We all have been there before—sales says, “Just get the order we don’t want to upset the client and we need the work”. Later the finance department cringes as they review the terms of the already consummated deal.

In the past when times were good, cash was flowing and credit was cheap, sales could easily muscle the close of a deal while the finance department, whose voice was rendered silent, scrambled to tie lose ends together (which usually involved reallocating funds and viewing profits on a larger loss/gain scale to justify the added risk). However, today the repercussions of those choices are becoming more and more evident.

For example, I was reading an article published by Reuters regarding the lawsuit against Angelo R. Mozil, Countrywide’s chairman of the board and chief executive officer until July 1, 2008. The 55 page document detailed email correspondence that was sent by John P. McMurray the chief risk officer,  warning of increased risk exposure from a “we beat any other” marketing campaign.

Having a strong marketing background, I respect competitive offering campaigns where a few dollars are lost while creating consumer loyalty but such a bold offer when a loan risk portfolio is involved —what were they thinking? I can only imagine that such a scheme was developed behind closed doors by an aggressive sales/marketing team without any input from the finance department.

This type of behavior is especially prevalent among small and mid-sized companies. They are fearful of dropping sales and are willing to sell at any cost, which usually reeks havoc on the balance sheet as cost overrun profit, margins slide, cash flow is sacrificed and in the worse scenario loan covenants are questioned.

In the past finance has always been viewed as a “historical department”, working with events that have already occurred. Perhaps it is time to take a more proactive approach—before closing that great deal or launching the killer marketing campaign check in with the finance person and ask the all-important question—if we succeed at closing this deal how will it affect the bottom line?