I was recently speaking to some executives on the importance of Finance at executive level and realised that despite knowing the basic financials, there were challenges they faced in interpreting the Financials.
This article is about spotting the right Financial Indicators in order to build Financial competence. I list 6 Key factors which Directors and Executives MUST understand in order to improve their Financial competence.
1) Know your Financials
You MUST know your Financials properly. It is very easy to simply look at profits and believe that the Company is performing above or below targets. As a former Group Finance and Commercial Director, I found that business unit heads had their main focus on ensuring that they have landed on money making contracts. They would deliver their results with quality but missed out on knowing their Division’s Financials. Without knowing financials, you will struggle to understand how you could improve your Division’s overall performance. You must Understand Profit and Loss, Cash flow statements and Balance sheet thoroughly.
2) Finance and Strategy Linked
When you have a strategy in place, the linkage between your Strategy and Financials is crucial. If you have goals and objectives in place, Executives must connect these to the financials with ease. The business rules are changing. Any single shift from strategy can be detrimental to the success of your organisation. With the changing trends and external factors such as exchange and interest rates, your company must be ahead of the curve by tweaking strategy as often as you believe necessary.
Companies don’t realise the importance of having Financial Conditions Policies, setting criteria in advance. List out your priorities and get your financial controller/ director to help craft a criteria based Policy. This will include the salient issues which, when covered will give executives the much needed comfort. These Policies don’t need to be five pages long. A one or two page richly crafted Policy would be sufficient, if prepared carefully.
4) Monitoring Mechanisms
Develop a Financial oversight mechanism interpreting the Policy implemented as described above. This means that you would have a system based approach. If there is sound reasonable interpretation of Policy, through a simple report interpreting the actions as per Policy, it would add value. The Policy will be able to reveal the strategy connectivity as well as any matters believed to be important. The interpretation has to be narrative explaining reasons as to why there were any deviations and the root cause of variances. This way, Directors and Executives would be able to focus on core matters of importance.
5) Training and Development
Build your knowledge by attending Finance related Courses. We have developed award winning Toolkits for Finance for Directors and Executives which have proven to add value. If you could gain more in depth knowledge through attending a course or learning in house with Toolkits which have the quality, you will build your financial competence within a few months. Our in-house workshops for organisations have proven to increase profits and cash flows.
6) Have a Financial Coach
Despite the above, many organisations still struggle to understand Financials. A financial coach would add value by looking at issues from a fresh perspective. But you must be careful when selecting a coach. The reason is that you will need someone who is qualified and experienced. There are many who claim they have the expertise but don’t deliver. The best are the ones whom you can test without signing any long term contracts. During an initial coaching session with my clients, I understand the client’s needs before proceeding.
In summary, Financial information is crucial and must be understood by Directors and Executives. I have seen many directors simply lost when it comes to contributing in a board meeting due to lack of Financial Know how. The above points will improve their understanding and build the much needed confidence to contribute effectively resulting in higher cash and profits.