Whether or not it’s your area of expertise, finance is a key component in the success of any business. For non-finance managers it’s vital to be able to demonstrate some understanding of this, to understand the basics of financial management and contribute to how the business grows. It will make decision-making more effective and help to ensure effective resource allocation, as well as strategic planning. So, where do you start when it comes to understanding finance for non-finance managers?
The basic concepts
Understanding finance will be different for everyone, depending on existing understanding and expertise. These are some of the basic concepts that everyone needs to start with:
● Balance sheet. A financial account of the business that reveals performance as well as current financial strength of the company.
● Assets. These could be tangibles or intangibles that the business owns. Assets are separated into categories e.g. fixed assets are plant and machinery and current assets, which are short-term assets like stocks or inventory.
● Liabilities. This includes everything the business owes, whether that is short or long term liabilities or contingent liabilities.
● Profit and Loss statement. The P&L statement shows profit generated and losses incurred during a specific period of time. It’s a strong indicator of performance and will include any sale or purchase once that transaction has been invoiced for.
● Cash flow. For any manager, being able to regulate cash flow within the business is going to be a key task. It’s cash flow that keeps the organisation running, whether that’s paying salaries or investing in marketing. A lack of cash flow forecasting can make it difficult to ensure that there is enough money in the business to cover day-to-day activities.
● Profit margins and profitability. Profit margins serve as a good measure of the profitability of a business and can be estimated using the P&L statement. Having a good understanding of profitability will ensure that you have a clear idea of financial standing, as well as any costs that need to be brought down and any parts of the business that would benefit from improvement or innovation.
● Budgeting. This is the process of analysing financial records to get a better idea of business finances and then planning for the future. Budgeting helps an enterprise to set realistic financial targets and determine actual resource requirements so that cash flow can be better controlled.
What are the benefits of understanding finance for non-finance managers?
Taking the time to understand finance even if it’s not your main role has a number of key benefits:
● Being able to analyse and work with critical financial statements.
● Making more informed decisions about pricing etc. as well as understanding costs and how to streamline them.
● Being able to communicate more effectively with finance people, from internal personnel to investors and lenders.
● Having the ability to integrate financial information into key decisions about the business going forward.
For non-finance managers there are some clear reasons why it makes sense to take the time to understand the finance side of the business and how it is likely to impact on growth and progress going forwards. Find out more by booking onto our Finance for Non-Finance Managers Training Course...