As a non-finance manager or executive are you completely lost when it comes to understanding financial jargon? Well if you replied “Yes” then you belong to the majority according to the Harvard Business Review. It revealed that only 38% of executives could pass a basic financial literacy test and many of them couldn’t define ‘free cash flow” (Berman & Knight, 2009).
See if you can answer these three questions they asked ..they are not as easy as they might appear and only a mere 26% got question 2 right!
Finance may not be a large part of your role but it is very important in today’s challenging marketplace for all managers, executives and small business owners to have a firm grasp of the fundamentals. Successful managers must be able to communicate effectively with those who get things done and those controlling the financial aspects of the organisation. To succeed as a non financial manager, knowledge of basic financial principles (balance sheet, profit/loss account and cash flow) as well as the budgeting process is critical. You have to understand that the decisions you make in running your department or business will affect your organisation’s financial performance and you are likely to be held accountable for this. If you want to move to senior management then it is almost certain that you will need to have a working knowledge of financial management to help budgeting, increase profits through recognition of financial drivers/ loss makers and determine financial viability of projects. It also enables you to make sense of those financial statements about your organisation’s operating costs and financial control.
The challenge is that a large number of us perceive finance as boring, irrelevant to our roles and difficult, but we all know that cash needs to be managed effectively in order to meet present and future demands . It might even help ensure that your role will be not become redundant due to “tighter financial controls” proposed by the accountants you perhaps walk swiftly past. Warren Buffett said ‘There are really only three kinds of people in the world: those who can count and those who can’t. Which one are you?”
Could you go up against the Dragons with your financial knowledge?
Berman, K., & Knight, J. (2009, October). Are your people financially literate? Harvard Business Review. Retrieved September 15, 2011, from http://hbr.org/2009/10/are-your-people-financially-literate/ar/1