Opinion: Your company’s future depends on your financial literacy

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The American Management Association is the oldest training company in the United States. It was founded in 1926 and has trained over 10 million people. Of the 160 business seminars it offers for business owners, leaders, managers and first-line supervisors, the most popular learning program is a two-day workshop called "Fundamentals of Finance and Accounting for Non-Financial Managers."

This program is not popular because it's the easiest to attend or the shortest (others don't require nightly homework like it does and are usually three or four days in length). It's popular because it's the most necessary training for business success for current and future leaders. To help you promote in your career as a business owner or leader, you must be able to "speak the language of business.” That’s about controlling cash flow, understanding budgets, monitoring spending, increasing revenue within existing or future staffing levels, controlling costs, allocating assets, inventory and resources, and knowing how to read and interpret often-interrelated financial reports.

People wanting to start a new business, especially one that needs a bank loan or a venture capital infusion, know that they have to develop a thorough business plan. But after getting funded, they defer the "financial stuff" to someone else in the company, or worse, they ignore it until cash management and cash flow become major problems to their survival. This is a common issue with business founders who describe themselves as "creative types, technically minded, artistic, client-focused or relationship-oriented," where their lack of financial sense overwhelms the other skills they see as somehow more valuable.

If they don't take ownership of the financial side of their business and rely on other employees – who may not be ethical or have much of an aptitude for numbers either – they run the risk of embezzlement or financial ruin.

Many talented people new to running a business discount the need to work "on the business" and confuse it with working "in the business." Both are necessary, but the former means they need to set regular times to do a thorough review of the company's financial health – looking at a dashboard of reports that should spur them to make important and even immediate decisions. Too often, though, they focus on working on client relationships, sales, marketing, research and product development, hiring and employee management issues, mostly because the financial discussions are considered tedious, disconcerting, stressful or boring. In short, they’re taken out of their comfort zone.

They justify this hesitancy or avoidance of regular financial reviews because it's easier for them to spend their time doing the work tasks they like – making money and interacting with colleagues, clients and customers – versus the ones they don't. They rationalize the time they spend on marketing or product development as somehow more valuable than the time needed for financial reviews.

Ask any financial management professional – certified financial planner, stockbroker, accountant or tax preparer – how often a married or cohabitating couple needs to actually sit down and review their income, expenses, budget, savings and investment plans. Their answers may range from once per week to once per month, but these discussions – with the accompanying reports, bank statements, receipts, etc. – must happen to allow one or both members of the relationship to sleep soundly at night.

As an employee wanting to move into a supervisory, management or leadership role, it's critical for your success to acquire a knowledge of basic financial statements. You must understand a few things: the accrual process, the accounting equation and what generally accepted accounting principles means; liquidity, leverage and profitability through understanding cash flow; fixed, variable, overhead costs and break-even analysis; balance sheets and income statements; operating and capital expenditure budgets; employee and payroll tax reporting requirements; and return on investment for departments, projects and strategic plans.

And even if the company you're working for or managing is not traded publicly, you should still understand how the capital markets work and how to read a company or a competitor's annual report.

There are lots of approaches to improving your financial literacy. A few suggestions: online courses from training companies that specialize in one-day or multiday seminars; local or online college and university classes, extension courses or certificate programs; or self-study programs offered by financial education nonprofits or associations.

Ask for mentoring from the financial professionals in your firm. Get directions, a lesson plan and supportive career guidance from your CFO, finance manager, CPAs or similar experts. They recognize the value of the data they create and interpret; they will want you to appreciate it just as much.

Steve Albrecht is a Springfield-based human resources trainer, security consultant and employee coach. He can be reached at drsteve@drstevealbrecht.com.