Financial Literacy

Importance of Financial Wisdom?

Did You Know That Developing Financial Wisdom Early In Your Career Works In Your Favor, Especially If Your Goal Is Attained The Top Job At An Organization? Roughly 30% Of Fortune 500 CEO's Spend The First Years Of Their Career Developing A Strong Foundation In Finance. But That Doesn’t Mean Financial Wisdom Alone Will Get You To The Head Of The Table. Of Those Fortune 500 CEO's Who Started Early In Finance, Only 5% Were Promoted Directly From CFO Positions. Most Of Them Came From Broader COO Or President Positions. So, The Message? Build Your Financial Wisdom Early. Keep Developing It. Combine It With A Broader Working Knowledge Of The Business. Breath Of Knowledge And Experience Built On A Strong Sock Financial Foundation Could Be Your Ticket To The Top.

Knowing your numbers is a fundamental precept of business - Bill Gates

Why Financial Wisdom?

Finance Is About How Organizations Generate, Preserve, Account For, Spend, Manage, And Move Money. Every Organization Needs To Be Concerned With Its Financial Health. Failure To Keep A Laser Focus On Financial Matters Will Ultimately Doom Most Any Enterprise. Every Part Of An Organization, Whether For Profit Or Not, Is Impacted Directly Or Indirectly By Financial Results. Finances At The Core Of The Business Activities. 

It Affects How An Organization Raises Capital, Analyzes, And Value Investments, Develops And Executes Plants, Paper Improvements And Pay Its Taxes. As Central And Important As Finance Are, Studies Show, It’s Not Understood Outside Of The Specific Domains Of Finance, Accounting, And Audit Functions. You Don’t Need To Be A Finance Expert, But You Need Wisdom On The Fundamentals, At Minimum. People At All Levels Need To Understand The Financial Information That Is Relevant To Them So That They Can Act On It. To Be A Successful As A Leader, You Need Not Only To Understand Finance But Also Know How To Incorporate A Financial Thinking Lens Into Every Major Decision You Make.

What Does Highly Skilled in Financial Wisdom Look Like?

·         Someone that understands the meaning and implications of key financial indicators.

·         One that uses financial analysis to generate, evaluate, and act on strategic options and opportunities.

·         Someone who is skilled in integrating quantitative and qualitative information to draw accurate conclusions.

Ten Tips on to Develop Financial Wisdom

1.       Don’t Know The Basics? Get Training. If You’re At A Loss, Learn What You Need To Know. Get An Expert Explanation Of Basic Techniques And The Language Of Financial Analysis. Trends. Benchmarks. Common Size. Percentage Change. Ask An Analyst To Explain The Business Models And Tools Used Your Organization. What Do They Measure And Why? Where Does The Data Come From? What Else Do We Need To Know? Find Out How An Auditor Looks At Your Operations. Take A Course In Basics Of Budget Management Or Finance For Non-Financial Managers Can Be Invaluable In Helping You Think About Business In The Right Way.

2.       Think Finance Is Not Your Responsibility? Get Involved. It’s Easy To Consider Finance The Responsibility Of The CFO And Strategic Thinking Something That Happens Only In The C-Suite. If You’re More Junior, You May Not Think Much About How Your Decisions Affect The Overall Organization. If You Lead A Function Like Human Resources Or Marketing, You May Tune Out When Financial Questions Are brought up. But It Is In Everyone’s Interest To Include Costs, Investment, And Other Financial Considerations And Decisions.

3.       Focus Too Narrow? Expand Your Perspective. Do You Lead A Business Unit, Manufacturing Facility, Or Other Operational Unit? In Charge Of A Functional Group Such As IT, Legal, Or Distribution? If So, You May Focus Your Financial Leadership Solely On Your Department Or Operation. Step Outside Of Your Silo And Consider The Wider Picture. Get A Full Perspective On How Your Unit Contributes To The Whole. Understand How The Business Works-How It Functions Within Its Industry. Challenge Yourself To Explore A New Ideal Every Month.

4.       Emotional About Decisions? Ground Yourself And Data. Pull Together A Team To Share The Decision-Making. Get Your CFO Or Financial Analyst Involved. Ask: What Can Good Financial Modeling Tell Us About The Future? What Does Accounting Tell Us About The Past? What Is At Risk? Based On These Facts, How Do You We Make The Best Decisions-Now-To Assure The Long-Term Prosperity Of The Organization? Make Your Decision Only After You Consider All Sides Of The Equation.

5.       Overwhelmed By Data? Selective Focus On A Few Metrics. Finance Deals With All Aspects Of The Organization-Revenues, Costs, Taxes, Losses, Profits, Market Projections, Investment Analysis. It Provides Historical Data. Forecast Projections. Accounting For Cost Control. Analysis To Understand Customer Trends. It Deals With Macroeconomics And Specific Quarterly Variables. To Make Wise Financial Decisions, You Need To Start With Good Information. Data To Create Incredible Picture That You Can Act-On. Look For 3 To 5 Key Metrics You Can Use As A Bellwether Data Point For Your Planning And Decision-Making. What Is The Key Factor That Will Drive The Situation? What Numbers Provided That Lead To A Green-Light Or Signal Caution? Bring The Data Into Context. Is The Organization Focused On Reducing Expenses? Expanding Service? Supporting Growth? Are You Concerned About The Financial Outcome Compared Forecast? Run Your Numbers Passing Colleagues-Especially In Finance-And Asked If They Agree With Your Assumptions. Understand How These Numbers Promote For Hinder Future Financial Performance Will Allow You To Make Strong Strategic And Tactical Decisions.

"Money Is A Tool. Use Properly, and It Can Make Something Beautiful.

Use It Wrong; It Makes A Mess"

6.       Making too Many Spending Decisions. Proceed Wisely. Whether You’re Developing A Five-Figure Project Budget Are Just Submitting An Expense Report, Is Easy To Lose Perspective On The Money. You May See Yourself In A Tug-Of-War To Secure Resources. You May feel Constraints By Controls That You're not in agreement. Why Spending Balances Short-Term Needs With Long-Term Effects. If You’re Writing A Budget, Understand The Full Picture, Then Drill Down Into The Details. Look For Savings in Equipment, Travel, Or Staff That Can Wisely Be Spent In Another Area. Set Policies And Meet Goals While Protecting Funds. Build By-In And Compliance By Sharing The Decision-Making Process In The Team. While Certain Details Of The Budget Are Confidential, The Team Will Benefit From Knowing How Expenditures Are Allocated Share The Decisions.

7.       Need To Write A Forecast? Look Beyond Existing Data. Accounting Data Primarily Tells Us What Has Occur To Date. But Sometimes You Need To Leave Into The Future To Make A Recommendation. Decisions To Invest In Products, To Act To Our Current Staff, To Buy Or Divest A Business-All Require You To Make Educated Guesses About The Future. To Forecast The Future, Use Grounded Processes. Look Inside And Outside The Organization-What Could Alter Prevailing Trends? Share Your Assumptions With A Few Colleagues. Asked Them To Challenge Your Thinking. Recognize That There Is No Crystal Ball. Financial Projections Developed From Solid Knowledge Of How The Business Operates And A Willingness To Identify Extraneous Factors That May Impact The Business Soon.

8.       Presenting Financial Information? Taylor Message To Your Audience. At Any Level Of The Organization, You May Be Asked To Present Financial Information. The request Can Be Part Of The Budget Planning, Capital Purchasing, Reporting On Final Fiscal Results. You Need To Consider Your Audience In Planning Both The Content And Your Approach. First, Find A Key Metrics And Use Consistent Messaging. What Is Most Troubling To This Group If Regularly Communicate Financial Results, Find Key Performance Metrics That Can Use As A Bellwether Data Point For Others To Cue In On It. Second, The Data Suggests Us Certain, Actions Needed To Be Taken Co-Subjects Cutting Costs, Raising Prices, Etc., -Let The Audience Know. Then Use A Data Support Your Recommendation. Third, Use Visual Effectively. Present Information In A Way That Others Can See And Comprehend Quickly. Columns Are Gray Print Are a Good Way To Bury Information. High Graphics Help You Tell A Story Eliminate Trends. Study Annual Reports And Other Financials For Formats Are Easy To Use And Comprehend. Fourth, Be Concise. Don’t Drown The Audience Or Reader-Only Include Wessex Central To Understanding Your Message.

9.       Want To Improve Operations? Understand Audit. While Perhaps Not The Most Glamorous Of Functions, Audit Serves A Viable Purpose In Any Organization. Auditing The Different Facets Of The Operation, Important Information Services-Both On Was Going Right And What Needs Fixing. Auditing Helps Organizations To Minimize Risk. Increase in Efficiency. Eliminate Waste. Save Resources. Avoid Legal Or Regulatory Trouble. Because Examine Operating Procedures In A Detailed Way, And They Provide An Invaluable Look At How The Organization Functions-From The Inside Out. So, If You’re New To The Organization, You Want To Make Real Improvements That Will Change The Bottom Line, Or You Want To Know More About How Things Happen, Get To Know You Auditor Auditing. Study The Reports They Generate. Look For Improvement She Can Make. If Any Areas Of Concern, Consider Requesting A Special Audit. Study Shows That When You Define The Problem, Actions Follow. Useful Auto Information Is A Spur To Decision-Making And Improvement.

10.   Disappointed By Results? Study Data To Make Course Corrections. An Organization Starts A Physical Year With Great Intentions. They Produce Forecasts And Annual Operating Plans. Create Budgets To Predict And Control Spending. All Marketing, Sales, And Staffing Plan To Drive Growth. It’s A Perfect World, Results Would Role As Predicted. But Variances Are A Reality. Cost Exceeds Budgets. Investments Failed To Deliver As Plan. You May Not Want To See These Numbers, But They Highlight Areas Of Improvement. Get Access To Monthly And Quarterly Reports And Dig Into The Data. Where are Variances Occurring? How Serious Are They? What Are The Causes? What Is Impact? Could Be Due To A Flaw In The Pricing Or Marketing Strategy. Cost Too High? What Can You Change Or Control Result Back In Line With Projections? Focus on Underlying Causes And Make Corrections.

Lastly - Take Time To Reflect

If finance seems like a foreign language to you

…then find a good translator. Develop an ear for the language of finance become familiar with the interplay of figures and metrics. Learn what the numbers are saying and let them guide you.

If your use to make decisions up without considering the bottom line

…the realize the risk you’re taking. Making bold moves without studying the facts and publications is like a doctor treating patient without reading their lab results.

If you think understanding finance doesn’t relate to you or your work

…then start close to home and work outwards. Understanding your own teams’ contributions first will help you see the data in context. It will make the broader financial landscape more relevant and more interesting.

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