Finance For Nonfinancial Managers Is Not A Choice But A Necessity
Not every professional or entrepreneur has to be a financial wizard. But it is critical for each one of them to understand finance that can help them drive business performance, growth, and the financial health of their business.
Key Takeaways
- Knowledge of finance helps non-finance managers to understand and analyse critical financial statements and date
- Awareness of financial terms and techniques can guide non-financial managers to make informed and effective decisions
- Finance provides non-financial managers with an insight into various types of cost and how they can reduce them or how to choose the best product mix
- A grasp of finance makes it easy for them to communicate with finance personnel such as lenders, banks or investors effectively
Why is finance so important?
Finance is an indispensable part of day to day life of everyone be it in a personal capacity or business decision making. Needless to reiterate that finance is a vital aspect which every individual should have a grip on if there is an intention to make an effective contribution to the success of their organisation. A non-finance professional needs to analyse facts and figures at some point in time to drive operating and strategic plans in businesses.
The global economy runs through an orderly process of finance like; capital markets provide the money to support business, and business provides the money to support individuals. An insight into this ecosystem is critical in the decision-making process in businesses.
Why is financial knowledge necessary for non-finance managers?
Professionals who are equipped with an understanding of finance are considered good managers and decision-makers. Furthermore, non-finance professionals must interact with finance professionals and as well have an insight into how one’s decisions and actions influence the results of the organisation and their own individual contribution. The constraints regarding the decisions of the market also need to be understood for identifying the risks and the financial knowledge ensures that the decision is not putting the financial aspect of the company at risk. In addition, the ability of non-financial managers to interpret financial information will help them manage communication with the company’s financial managers more productively.
A professional needs to be equipped with financial decision-making tools as it will help them to:-
- Read, analyse, and understand the financial statements
- Get an insight into the nature and structure of cost and ways to reduce and control cost
- Take devise pricing strategies and decide pricing policies
- Decide optimal product mix
- Choose the best-suited option of financing the fund needs
A comprehensive understanding of the key concepts of business finance makes the decisions of non-financial managers effective and guides them to move closer to their ultimate business goals and objectives. Executives and directors of a company need to interact with their crucial finance leaders regularly and such interactions help them in understanding what the company’s financial statements and reports are telling about the financial situation of the company and its performance. It is also necessary to get an insight into how the decisions taken by non-finance managers can influence the finances of the company.
Key Finance KPIs Non-Finance Managers should know
Naturally, the senior management does not spend too much time on minute details of financial statements to measure the performance and health of a business. Instead, they would like to consider major KPIs as indicators to measure business and individual performances, which will further assist them in making corrective or improvised decisions.
Every business has different KPIs and likewise, each function has KPIs different from others to analyse business performance. For example, KPI can be CAC, Debt-Equity ratio, ROA, ROE, CLV, Employee Satisfaction Rating, Sales Target, Capacity Utilisation, etc, depending on the function.
Neglect Finance at your peril
A common tendency among non-financial professionals is to accord the least priority to finance and accounting. This is one mistake most non-finance managers commit that can turn out to be very costly to their business and their individual performance.
For almost all organisations, accounting and finance influence nearly every facet of their business. In other words, each and everything you do in business has a financial impact one way or another. Neglecting finance will cost dearly in business and life. For example, the decision to buy materials from a particular supplier or in a certain quantity or hire an employee or outsource the services, buy or lease, choosing the marketing or sales channels, deciding on product mix on production lines, etc, to name a few have an impact on the financial performance of the business.
