By: Cherry Birch On: January 2, 2020

How do you rate your financial smarts? Would you like to feel more confident in this area?

Over many years of working with managers, they often confide in me that they have been in meetings, terrified someone is going to ask them questions about their financial reports. Others have told me that when the finance person starts talking, they cannot understand large parts of what is being said.

So what do you need to know?

A basic level of financial understanding for business managers and decision makers should incorporate financial planning, costing and budgeting.  The following areas of business finance may be considered essential for effective management:

  • Understanding financial reports: Income Statement, Balance Sheet, Cash Flow Statements
  • Key financial ratios: Profitability, Capital Structure, Return on Investment, Liquidity Ratios
  • Business finance: The Business Cycle, Planning, Year End Activities, Expense Control
  • Budgeting and Costing: Budget setting, monitoring and control, Variance Analysis, Cost planning and control

Financial Fitness Test

Whilst you will find a much more comprehensive financial fitness test here, I’ve listed a few questions to get you started.

  • What is a balance sheet?
  • Why is it important to understand cash flow? Does your organisation measure Free Cash Flow and how is this measured?
  • What is equity and gearing and why are they so crucial to a business looking to raise more capital?
  • What are EBIT and EBITDA and why do so many businesses focus on one of these?
  • What if you could increase revenue without having to invest any more to do it?
  • What impact does depreciation have on your cash flow?
  • How can you improve your current levels of profit and revenue?
  • Do you know which customers are the most and least profitable?

Effective financial management is a powerful factor in the success of any business.  Many businesses fail – or fail to reach their full potential – not because they don’t have enough customers, but because of poor cash management.

So, would you like to test yourself (or your colleagues) further?

We understand that as a business leader, you are probably not looking to become a finance expert. However if you would like to be able to apply a greater level of financial awareness to your leadership decisions, then download our Financial IQ Accelerator by clicking here.