All the decisions that a manager makes can have financial ramifications. There can be no business without some sort of finance involved. When a manager develops his basic financial skills, he will be able to understand how his decisions will impact the organisation. Also, he and his team can make better financial decisions with the right financial skills set. Here’s a list of basic skills a manager should possess to become effective at his job:
1. Embracing the financial mindset
Before diving straight into the world of numbers, you should get a hold of things that sets finance apart from accounting. Accounting is more of an “in-time” play, while finance has more of a future outlook. Finance will consider the current situations to figure out future values. Finance has a forward-thinking aspect. With a financial mindset, a manager can envision a team’s skills and the company’s offering as an asset with the ability to conceive. While accounting and finance are significant for an organisation’s operations, the forward-thinking financial mindset helps a manager lead the team and plan ahead.
2. Understanding the financial vocabulary
Even without a financial background, a manager should be able to contribute to the vital financial discussions of an organisations, and also should be able to read the financial statements. But first, the manager should able to recognise the common financial terms like:
– Assets: These are the items that an organisation own to produce future benefits. Assets that you think will be beneficial for the company within a year are called current assets. And the ones which you think are tangible and will generate income in the long-term are called fixed assets.
– Liabilities: These are known as the expenses of your organisation owed to other parties. Current liabilities are the ones that you have to pay off within a year, while the long-term liabilities can be paid off in the future.
– Income: The amount earned by the organisation through the sale of its goods and services is called income.
– Expenses: The amount spent by the organisation to produce and deliver its goods and services is called expenses.
– IFRS: The International Financial Reporting Standards are a set of rules and guidelines for finance that are followed by most countries. As a manager, you should check whether your organisation follows these guidelines.
Understanding these guidelines and different financial terms will help you understand your organisation’s financial stand better. It will provide you with a clear view of your company’s numbers and financial statements.
3. Reading the balance sheet
A balance sheet is a document that showcases your organisation’s entire assets, liabilities and owner’s equity. Simply put, Liabilities + Owner’s equity = Assets. The critical part of understanding the balance sheets is its name itself; the balance. If your organisation’s assets do not equal the sum of its liabilities, then the balance sheet is not balanced, and vice versa.
4. Reading the income statement
This one’s also known as the profit and loss statement. This document shows your company’s income and expenses over a period of time. The amount spent overproducing and delivering your goods and services and the amount earned through the sale of your goods and services are recorded in this statement. This statement shows how your company has been performing over the period of time. Understanding such statements can help a manager make proper decisions and align the departments to focus more on profitable aspects of the company.
5. Budget management
When it comes to budgeting, each member of the organisation plays an important role. As a manager, your budgeting skills will help you understand how to translate your company’s budget into goals. You will have to effectively communicate the same with your team to reach those goals. A good place to begin with, will be looking into your company’s budget and tracking how the finances align up with your organisation’s goals. For example, if your company will be focusing on pushing out a new service, then your budget should reflect the spending allocated for that. As per this rationalisation, you will have a clear idea of how the company’s budget is being utilised, and then you can allocate the rest as per your strategy.
6. Variance:
Inconsistencies in your statements are described as a variance. These inconsistencies can be in the form of budget numbers not aligning with your actual numbers, an unbalanced balance sheet, discrepancies with your profit and loss statement, etc. Recognising these inconsistencies is one thing; learning to analyse the cause of this variance is another key skill. The reasons can be complex or simple; it will depend on the situation to the situation. Getting to the root of the variance can help you solve the issues at the earliest.
Conclusion:
A manager with some basic financial management skills can go a long way into being an effective one. Being able to actively participate in the company’s financial outtake can be crucial. And being a manager, one will be able to make proper changes and take proper decisions, which will help in the positive outcome of the organization. Learning the basic financial skills helps the manager be well-rounded and enables one to look at the bigger picture.
Authors Bio:
Rohit Chandiramani is the CEO of London Business Training & management course. Having completed his MBA, not only is Rohit a student of Business and Management, but through his firm has also facilitated the delivery of the subject matter to hundreds of learners over the years. A regular trekker, he likes to scale greater heights in the Himalayas, and in the world of business.