We have just entered the start of the new financial year. For many in the business world it is a new start, whether individuals are starting a new business or business leaders are reviewing the finances of their organisations and looking at new methods of approaching new opportunities from a financial perspective.
Different businesses require varying methods of innovation according to the direction in which the business leader judges their organisation must take. There are, however, certain general financial considerations that must be taken into account when implementing new strategies.
The leader must understand cash flow and cash management; and it always helps to be at ease with financial language. Planning and budgetary management skills are essential: these are the parameters by which the innovation is determined in its overall scope. The leader must be able to see what figures reveals: he/she should be able to understand and interpret accounts – what are the trends that manifest themselves over the course of the year etc. The leader of an organisation must also be aware of the impact of his/her decisions on the profitability of the business. Overall, the business leader must be aware of the finance function within the organisation.
Accounting records are absolutely necessary – assets/liabilities, income/expenditure, the balance sheet and Profit & Loss accounts. It is advisable that the business leader be aware of the meaning of certain essential accounting terms – for example: ‘going concern’, ‘accruals’, ‘prudence’, ‘consistency’ and ‘depreciation’. When it comes to the minutiae but all essential cash flow and cash management, the leader ought to be furnished with an understanding of working capital, flow of funds and cash flow statements, gearing, current and liquidity ratios.
Further to these elements of financial leadership, the leader of an organisation should understand the detail of budgetary management including the budget cycle, incremental zero/priority-based budgets, creating and reviewing budgets, working within a budget, realigning and flexing the budget. It is essential that the leader of an organisation is able to interpret accounts and review them in the following terms: ratio analysis, return on capital employed, assets turnover, fixed assets, debtor and stock turn. In addition, an understanding of accounting policies and company valuations is, without doubt, an element that ought to fall within the skillset of a leader from a financial perspective.
An understanding of financial leadership is not a great mystery, and it does not need to be for any business leader. Whether you are an Entrepreneur, Regional Manager, Departmental Manager, or an MD of an organisation with varying degrees of success over the course of its history, the importance of maximising efficiency in all aspects of Business Operations and Business Strategy is essential in improving your bottom line. Alternative Partnership Business and Training Consultants will aid in the improvement of your business in all aspects relative to our Training Needs Analysis of your Operations and Strategy.