Have you ever been in a meeting and someone said “we need to improve our efficiency” or “management wants ROE to increase by 2%” or “the business needs more cash flow?” While that all sounded good, you:
- Felt unsure about what it all meant, and
- Hoped no one asked you a question about it
Join the club, you are not alone…
While you may be a key contributor and very good at what you do, not having the right amount of financial acumen can hold you back. Not understanding financial information is a dirty little secret that exists in many organizations, across many professionals – and it will impede your success.
What is Financial Acumen and Why Do I Need It?
Financial acumen at a basic level is possessing a solid understanding of what drives your company’s profits and expenses and how key financial metrics are used. You don’t have to be a financial whiz, but you need financial acumen to:
- Understand the financial goals of your company
- Recognize why management is taking certain actions and what needs to improve
- Determine how to help your company make more money, save more money and improve those key metrics management is tracking
You also need financial acumen so you can contribute more in meetings, hold strategic conversations and manage your own career. Marina Theodotou of the American Management Association says that “strengthening your financial acumen is a must in today’s economy.” (1)
Building Financial Acumen and Where You Fit
I’ve spent over 25 years helping organizations build financial acumen, and my experiences in learning and consulting have been consistent – a lot of smart business people are not savvy about financial statements or financial ratios. But once you break down the barriers of understanding and build the foundation, you can quickly learn the language and grasp the most important financial concepts. With a short investment of time, all that financial jargon will make sense and improve your engagement and success.
Where are you on the financial acumen knowledge continuum?
- Do you need to start from scratch?
- Do you know the basics but need a refresher?
- Do you need to understand specific financial concepts about your company or your business unit or both?
- Are you an expert already?
If you are not an expert, find out if your company offers financial acumen training. If training is not available, consider talking to your mentor or manager to learn how other professionals have improved.
Apply Financial Acumen
Once you improve your financial acumen, apply it. Pay attention to how your business unit and company are performing quarterly. Review the annual report and quarterly earnings releases to stay up-to-speed. Read investor presentations to learn management’s current strategic thinking and direction. You might not understand all that is in these documents, but basic financial acumen will allow you to understand what is most important. You will also learn that certain metrics are more important than others. Prioritize those metrics and think creatively about how you can help support your company’s goals. You were probably already contributing to your company’s success, but now you can quantify it too!
Improving Financial Acumen Increases Strategic Engagement
The benefits of improving your financial acumen are more than I can list, but for a start, it can help you:
- Increase your financial understanding and confidence
- Analyze data and interpret key performance indicators
- Diagnose what is working and what needs to improve
- Stay up to speed on your company’s financial performance
- Engage in more strategic conversations
- Develop business plans or personal objectives in line with your company’s goals and strategy
- Drive measurable results
By building your financial acumen, your strategic engagement will improve and you won’t have to keep that dirty little secret anymore!
(1) Quote from American Management Association’s “Three Financial Acumen Skills You Do Not Want to Ignore” written by Marina Theodotou.
What are your thoughts on Financial Acumen?
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About the Author
Chris Lawton, a founding partner at Performance Solutions International (PSI) and financial services consultant, has been providing training and consulting services for the last 25 years (after a career in public accounting).
Performance Solutions International (PSI)
PSI is the leading provider of industry-focused performance improvement services that empower your professionals with the knowledge, skills and tools they need to succeed in today’s highly competitive environment.
Our industry expertise, financial knowledge and instructional design capabilities, coupled with over 25 years of working with leading organizations, provides you with a partner who understands your business and can deliver.