Importance of Financial Acumen
Updated: Oct 15, 2020
As an entrepreneur, business leader, CEO, technical or support staff, irrespective of where you belong on the organogram, understanding financial information is important. Even if your day-to-day role does not require you to have a lot of finance knowledge, interpreting financial statements and acronyms like NPV, PAT, PBT, EBITDA is important. It improves communication with stakeholders, gives a better understanding of business, aids in decision making, positions for improved negotiations and is a definite boost to managing your personal finances.
As a buyer or seller, you will be comfortable knowing that a discount of ‘’Buy three get one free” is the same as 25% off. It becomes easier to sell a product or strategy if you are able to demonstrate value in terms of numbers or for that matter, make better purchase decisions or develop meaningful discount packages.
So how do you increase your financial insight? Here are some ways;
Be intentional and tackle the numbers
The beauty with accounting and finance is that it’s standard. The math involved is way easier; add, subtract and sometimes division and multiplication. You need to be able to compute how much simple or compound interest you would pay or receive when choosing a savings plan or loan facility of 10 million at a rate of 15%.
Familiarize yourself with the terminology
Finance comes with a reasonable amount of jargon. Being familiar with the terms will help you make meaningful contributions in meetings and the making of key financial decisions. Take advantage of online resources, your networks or reference books to learn the terminology. In specific consider learning how to measure revenue, operating expenses and Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). There goes one of those acronyms (lol)!
Focus on key financial measures
To develop a deep understanding of finance you may consider starting with a few performance measures that apply to your business/organization. Ratio analysis is a good way to start, key ratios include profitability, liquidity, leverage, efficiency and a range of other ratios. Of note as well are a series of Human Resource (HR) ratios to measure staff productivity. All in all, ratios are an excellent way to compare different scenarios or tabulate and assess performance across a wide range of areas over time. I am happy to recommend KPIs That a Matter, a great guide with definitions and calculations for just over 30 financial indicators for business.
If required, consider guidance from a Financial Mentor
Improving your financial skills may also require working with a financial mentor who can help you with financial models, and key decisions.
Hope this helps! Best regards and be safe!
Catherine Asiimwe, is an experienced Certified Public Accountant (CPA) with over 9 years of finance, tax, audit and governance experience. She holds a Master’s Degree of Business Administration (Finance), Certified Public Accountant (CPA), Project Management Professional (PMP) a member of Project Management Institute, USA. She completed a Leadership in Public Management and is a Mandela Washington Fellow.