Managers who fail to become financially savvy not only self-sabotage themselves, but their business too. No
matter which department you serve in your company – sales, marketing, IT, customer service – and regardless of
your seniority, you are responsible for your company’s profitability. There are expectations every company must
have. A company’s finance department reports progress through the earnings statement, a balance sheet, and a
cashflow statement. The earnings statement compares revenue with the costs required to make sales. The
balance sheet includes assets, what a company owns, and liabilities, what a company owes. Cashflow statements
are often overlooked, which is unfortunate because they are significant, as they show the cash available to pay the
bills. Without the numbers, no business can succeed.
Managers and employees, who fail to understand the numbers, make inaccurate decisions that further hurt the
company. Decisions that may seem accurate to an outsider, but are actually financially wrong. Companies do not
necessarily fail because they are not making profits; they fail because they do not have the cash to pay their bills.
A profitable company generates cash it can use for the long term. For example, investments in research and
development. Granted, there are huge downsides to everyone having access to company numbers, but managed
correctly, every employee can use numbers to better themselves and the company.
The earnings statement, also call a P&L (profit and loss), shows gross profit. It takes the total sales, minus the cost
of sales to get a gross profit. All sales are included in this, even if payment has not been received yet. Which is
risky because you may be creating a number that won’t ever happen, as sales may never be collected in full.
While the earning statement shows financial developments over time, the balance sheet is a snapshot of a
company at one point in time. It is usually put together at the end of a quarter or at the end of the year. It is
made up of a company’s assets and liabilities. There are two types of assets: current and fixed. Current assets are
expected to turn into cash within a year, such as inventory and unpaid invoices. Fixed assets are tangible items
such as land and property. Liabilities include loan payments and taxes. Savvy managers realize that even the most profitable companies can fail because they lack the capital or cash to pay their bills. The cashflow statement shows the relationship between profitability and a firm’s ability to generate cash.
When you have all the numbers, how do you track them? Your financial team will be able to explain to you the
return on capital, your pre-tax profit margin, return on assets, sales per employee, and profit per employee. It
gives your employees something to be competitive about. No matter an employee’s position or level, everyone
should be responsible for the business’ profitability. Allowing your employees to understand the company’s
financial information and knowing how to use the numbers will affect their career and impact your business. Most
employees don’t know where a company stands and lack motivation to do better. A manager doesn’t need to
disclose all the numbers, of course, but maybe just enough to get a fire in their belly.
Both managers and employees can use the numbers to analyze trends and spot patterns in the company’s revenue
and costs. Every person in your company should understand the components of, and relationships among, your
balance sheet, cash flow statement, and a P&L. They can gather information to forecast sales. Understanding the
numbers is a prerequisite for making money and will be important for your whole career. Your knowledge on what
to do with these numbers is just as important. You need a good grasp of the numbers if you are creating and
defending a budget, forecasting sales, developing strategic plans, deciding on projects, and dealing with
accountants. What is great, you don’t need an accounting degree to learn and master the numbers.
When you take on a role with financial responsibility, ask the accountants for a manual specifying your job’s
financial. It’s your job to contribute to the bottom line, to ensure that income exceeds expenditures. Beyond
generating revenue, one way management can keep a checks and balances system is to check any written rules
and have all systems put in writing.
One of the most amazing ways to use numbers is to forecast sales. You will have to turn chaos into order, and data
into information that can guide your decisions. You will analyze, interpret, review, and criticize any and all
expectations of your business’ future track. Use spreadsheets to seek trends that will help you see relationships
and patterns. For example, review your sales history for at least five years back. Watch for influences like
“seasonality” that can add to or detract from actual sales numbers. Seek relationships amid the numbers, even as
little as 2% increase in leads, or a 10% increase in advertising. Use what you learn about your company’s past to
attempt to predict the future. The best place to start is with a sales forecast because everything else you create
will pivot off of the sale projection.
Forecasting is a bit sophisticated by means of calling out any and all things than could affect future sales growth.
The sales projection lets you estimate all aspects of your business. You will want to look within your business, in
your industry, and outside to experts to learn about factors that could influence your future revenues. It’s about
taking the numbers you have and going above and beyond to understand them and predict the future in the best
way you can. You will want two different forecasts: one that shows the worst case of what could happen, and one
that shows the best that could happen.
Always look at numbers with a subjective eye. Question them right and left, and do not assume that just because
it’s written in a pretty report, they must be right. Assessing any company’s financial health can be a daunting
challenge. It takes education, patience, understanding, forethought, and execution to bring the numbers to live
and change your business into a massive success. With the right fundamentals, everyone on your team can chip in.
The manager shouldn’t be overwhelmed by the responsibility of financials. Have your employees learn to ask the
right questions, at the right time, and see how you and your team can watch your business soar.