There was a time when understanding the financial side of business was left to the accounting department.
Today, knowledge is not so strictly compartmentalized. Workers at all levels can be expected to have a basic knowledge of many business areas, including accounting. When an organization shares its financial picture with its entire workforce, overall performance is improved. Employees are better able to make the connection between the work they do and the overall success of the company. They display more commitment, loyalty and alignment with organizational goals.
However, not everybody is used to reading financial data. Some training is needed in order to gain financial intelligence. This means being able to understand financial statements and grasping how the numbers are linked to real life results.
There are four basic skills needed to gain financial intelligence. A manager, for instance, will need to understand financial statements such as spreadsheets, income statements, and balance sheets, and be able to make the distinction between “profit” and “cash”.
Next, they need to go deeper. Just because data appears on a spreadsheet doesn’t mean it’s the last word. It’s okay for a manager to question the numbers, and to ask for details about how they were arrived at. Then, they need to be able to see how their actions have an impact on financial results and use the analysis of the numbers to inform their behaviour and decision making.
Finally, financial outcomes don’t happen in a vacuum. A financially intelligent manager sees the results in bigger context. How were the numbers influenced by the state of the economy, society, new technology?
Although it will take time and effort for non-financial people to learn the new skill sets required for financial intelligence, it will be well worth the effort. The ability of employees to use financial tools to make and analyze decisions will help organizations move into the future with profit and prosperity.
The topic of this article is covered in the curriculum for the Schulich ExecEd course Schulich Mini-MBA: Essentials of Management (starting April 22, 2019). The program is designed to help prepare business people for new leadership roles, to broaden their knowledge of business and increase expertise.