20 Unwritten Rules About Corporate Finance
Corporate finance is the backbone of any successful business, guiding investment decisions, risk management, and financial planning. While textbooks and regulations outline the fundamentals, there are unwritten rules that experienced finance professionals follow to navigate the complexities of the corporate world. Here are 20 key unwritten rules about corporate finance.
1. Cash Flow Is King
Revenue and profit matter, but cash flow determines whether a business survives or fails. Always prioritize liquidity.
2. Profits Are Opinion, But Cash Is Fact
Financial statements can be adjusted through accounting methods, but actual cash flow tells the real story.
3. Debt Can Be a Tool or a Trap
Leverage can fuel growth, but too much debt can sink a company. Use it wisely.
4. Forecasts Are Always Wrong—Plan for It
No financial projection is 100% accurate. Always build contingency plans for unexpected shifts.
5. Cheap Capital Is Not Always Good Capital
Low-interest loans or funding sources may come with hidden risks, including loss of control or restrictive covenants.
6. Cost Cutting Alone Won’t Save a Business
While reducing expenses is important, a company cannot shrink its way to sustainable growth.
7. Investors Care About Certainty More Than Optimism
Shareholders and lenders prefer realistic, achievable financial plans over overly ambitious projections.
8. A Growing Company Can Still Go Bankrupt
Expansion requires capital, and without proper financial management, rapid growth can lead to insolvency.
9. Your Balance Sheet Tells the Story, Not Just Your Income Statement
A company might look profitable on paper, but if its balance sheet is weak, financial trouble is inevitable.
10. Tax Strategy Is Just as Important as Revenue Strategy
Smart tax planning can significantly impact profitability and cash flow.
11. Financial Models Are Only as Good as Their Assumptions
Garbage in, garbage out. If your assumptions are flawed, your financial model is useless.
12. Always Have Multiple Sources of Funding
Relying on a single lender or investor increases financial risk. Diversify funding options.
13. Corporate Finance Is More About Managing Risk Than Maximizing Profits
Sustainable companies prioritize risk management just as much as, if not more than, profit maximization.
14. Market Sentiment Can Override Fundamentals
Stock prices and investment decisions are influenced by emotions, trends, and speculation—not just financial statements.
15. Financial Statements Tell You What Happened, Not What Will Happen
Historical data is important, but strategic decision-making requires forward-looking insights.
16. Relationships with Banks and Investors Matter More Than You Think
Having strong relationships with financial partners can provide leverage during tough times.
17. Don’t Just Chase Growth—Chase Profitable Growth
Growing revenue without improving margins or cash flow can create long-term financial instability.
18. Free Money Rarely Comes Without Strings Attached
Government grants, venture capital, and corporate funding often come with hidden obligations. Read the fine print.
19. Regulations Can Change Overnight
Always stay ahead of legal and compliance changes to avoid financial and reputational damage.
20. A CFO’s Real Job Is to Protect the Downside, Not Just Boost the Upside
A great CFO isn’t just focused on increasing revenue—they mitigate financial risks to keep the company stable.
Understanding these unwritten rules can make the difference between financial success and failure in the corporate world. Smart finance professionals use these principles to navigate challenges and build lasting business value.
