Financial Acumen Can Elevate You and Your Team to the Next Level
As a leader or owner within a business, developing your financial skills is critical to growing in your position and in growing the organization.
What’s the difference between business acumen and financial acumen? Business acumen is a combination of knowledge and skill informed by experience: knowledge about key business issues, the skill to apply that knowledge, and the confidence to take action informed by past experiences.
Financial acumen is the knowledge and understanding of basic financial and accounting principles in order to have sound judgment when making business decisions. Those with financial acumen see the financial effects and relationships of various aspects of the business and how decisions will impact the financial health of an organization.
KEY FINANCIAL SKILLS IN BUSINESS:
Core financial literacy concepts – understanding cash basis versus accrual basis accounting is foundational to understanding your internal financial statements.
Cash basis accounting records revenue when cash is received and records expenses when bills are paid.
Accrual basis accounting records revenue when invoiced and expenses when billed.
The differences between the two accounting methods can result in materially different outcomes and thus the related decisions that you make based on the information.
Core financial statements – there are three main financial statements within a business. The profit and loss, balance sheet and cash flow statements. Each of these statements serves a purpose within the business and when understood can improve your overall business performance.
The profit and loss statement reflects the financial results of a company’s activities over a period of time.
The balance sheet provides a snapshot of the company’s financial position at a given point in time.
The cash flow statement provides a detailed picture of what happened to a business’s cash over a specified period of time.
Together, they tell a complete story as to how the business is performing.
Financial metrics – financial statements in isolation provide limited information. To understand how a business is performing, tracking key metrics and trends begins to tell a story. In addition, benchmarking your business to industry metrics can provide information on how you’re doing compared to others.
Budgeting vs. Forecasting – like metrics, without a budget or forecast, you don’t know how you are doing based on what you anticipated or expected.
A budget quantifies the expectation of what a business wants to achieve, whereas a forecast estimates what will actually be achieved.
Forecasts are updated more regularly, say monthly or quarterly, whereas budgets are typically done once per year.
When using these tools, a key element is identifying your assumptions. As with any budget or forecast, you are predicting the future based on assumptions. When comparing actual results, you need to understand what the initial assumptions were to know why you exceeded or missed what you expected.
Financial reporting – the ability to make good business decisions based on financial information and metrics requires that the financial statements be generated in a timely and consistent manner. Getting financial information 30, 60, or 90 days after the end of the period is too late. The ability to make decisions and impact the business requires accurate, timely reporting.
As organizations grow and evolve, the need for financial acumen and good financial practices increases.
What can you do to increase your financial acumen?
Review your financial statements monthly. If you have an internal accountant, go over the statements together so that you can ask questions and gain an understanding of the financial happenings within your business.
Review your cash flow on a weekly basis. Understanding where your cash is being spent and how much you’re bringing in will begin to develop financial competencies.
Find a coach who can assist you in analyzing and evaluating your financial statements and come alongside to educate and guide you as your business evolves.
One of the easiest ways is to set up a budget. Going through the process of establishing a budget will open your eyes to how much is coming into the business and where the money is actually going – and allow you to monitor performance from what was anticipated or expected.
Educate yourself through financial training designed for business owners and leaders. This can be accomplished through workshops, podcasts, newsletters, etc.
Share your company’s financials regularly with your leadership team. In addition to gaining experience and confidence working with the numbers, you’ll engage your key leaders at a higher level and increase their financial acumen.
Most business owners didn’t start their business because of their financial knowledge. They had a skill or competency that the market needed and built their business around that. Understanding your company’s numbers can change the trajectory of your business and increase profits. Now more than ever the ability to understand and make informed decisions based on financial data will separate those who succeed and those who fail.
JOIN US! FINANCIAL ACUMEN TRAINING
Build your financial skills and confidence in a confidential, small group learning environment. Designed for business owners and key leaders.
March 1, 15 & 29, 2023 | 8:00-11:00am Green Bay, WI or via Zoom
Limited to 10 participants. Class is already half full, so register today!
Jayne McQuillan, CPA, MBA, Certified Exit Planning Advisor (CEPA) is the owner of Journey Consulting, LLC
Our firm is focused on providing business owners and their businesses with strategic planning, exit planning, financial expertise, and organizational improvement. We use a holistic approach within all of our services by aligning leadership with business strategy and outcomes.
Schedule your free consultation call today!