Why Proficiency In Finance is Important for Senior Level Executives

Why Proficiency In Finance is Important for Senior Level Executives

Why Proficiency In Finance is Important for Senior Level Executives
Why Proficiency In Finance is Important for Senior Level Executives

October 27, 2020

In any corporate entity, a senior-level executive in a managerial or leadership role has to make decisions that often cut across functions. While your background might be something, you might be required to be proficient in something else, as well. For example, if you are a Brand Manager in an organisation that is looking to launch a new bar of soap, your game plan might go like this.

You might need to draw up a viable marketing plan, after doing extensive research on your competition, the market demands, and your customer's needs, amongst other factors. After drawing up said marketing plan, you might need to determine how much money is to be spent behind it. You need to draw up advertising budgets, for both online and offline campaigns. In such a case you need to be proficient in both marketing and finance to bolster your chances of creating a successful marketing plan.

One fact remains constant. Every business is established for the purpose of making a profit, and unless one understands financial statements, it may be tough to understand the health of a business.

Earlier, people would assume that managing the finances of an organisation is the job of the CFO or the finance department. Today, it is safe to assume that managing finance is everyone's business. Every business manager has a role in managing the finance of an organisation, as they are the ones who manage resources of the company, like people, manufacturing liabilities, distribution networks, inventories, customer receivables, and warehouses. The quality and efficiency of the use of the above resources is a direct influence on the ability of a firm to meet and exceed its customer's expectations. Effective management of these resources also directly impacts the amount of funds that needs to be sourced from the finance team.

Business managers influence financial management, directly or indirectly. In fact, anyone with a position of responsibility within a company needs to have a basic knowledge of finance, because if they're devoid of fiscal know-how, there's always someone who has that knowledge, waiting in the wings to replace them.

Here's why senior executives would do well by increasing their financial proficiency.

Helps in understanding basic financial terminology

Managers and senior-level executives need to be familiar with basic financial statements, to begin with. Understanding these will arm them with the basic terminology they require, to communicate effectively with accounting and finance personnel. It will help them understand what information financial statements present. It will show them how their actions have reflected in these financial statements, specifically the line items that have been affected. It will help the executives figure out how to use these financial statements to improve the financial and operational performance, for their areas of responsibility.

Assumes financial responsibility

The most important reason to pick up corporate finance skills, is that while financial issues might not be the primary goal of your position, you need to have knowledge of numbers, Because, your role might be increasing sales, developing marketing plans, devising new products and systems. Your responsibilities might also include being the leader of a team, department or business unit.

The knowledge of numbers will help you achieve your goals. Your employers have invested in you. They will measure your performance in terms of resource spent and results produced. Those aspiring to be senior-level executives and key corporate players will need resources. They will need to assume responsibility for the funds allocated to them by their firm. They can only do so effectively if they are financially literate.

Develops effective financial strategies

A business leader or senior executive might feel the need to create a departmental budget, in order to list out the firm's objectives for the coming year. This could also include projected sales, selling costs, expenses, distribution costs, and production costs. Financial efficiency is all the more important when budgeting principles are to be applied to new projects.

In order to justify your need for funding, you need to appraise the potential of your investment and show the project costs and benefits, the prospective profit and cash flow, and associated risks, if any. One thing is for certain. All planning is founded in uncertainty because money expected in the future, isn't worth as much as money in the bank today. Being proficient in finance will help you demonstrate that your strategy is accurate and that the value of money that you spend now, will somehow be justified by the eventual result.

Increases your horizon

As you ascend the corporate ladder, you will need to understand how your firm's or department's fortunes are affected by various external factors like competitor's actions, industry news and changing economic conditions.

Take the example of retail. Profit margins are very thin, and the first objective is to protect those margins, using means like cost control and quick stock-turn. Or, take the instance of management consultancy, where the expenses are huge, but so are margins. Hence, business managers are more involved with bumping up the sales or "top line" growth. Sound financial knowledge will help you make important decisions with respect to the above scenarios to ensure your firm remains on the road to success, by broadening your understanding of how different factors affect business.

Well, it is quite evident that once you are proficient in the language of finance, you are empowered with the knowledge to build stronger strategies, expand your influence within the organisation, and make better business decisions. Proficiency in finance, or at least a foundation in corporate finance is invaluable for leaders across every functional area.

Exploring the flow of financial resources, understanding capital markets, and systems for financial management and control, proficiency in corporate finance will help senior executives drive new levels of profitability for their organisation. Understanding corporate finance will help senior executives ultimately build the skills to play a bigger role in helping their firms optimise financial resources, and increase profits.

Recent Post

May 12, 2022

Change in the external and internal environment of a business is constant and when one is preparing himself for a leadership role, he cannot ignore...

May 12, 2022

To carry out a leadership role effectively, professionals today have no choice but to stay abreast with the volatilities, technological advancements, and other changes affecting...

May 11, 2022

Contents Quantum Computing Growth Quantum Computing enhancing Businesses in India Careers in quantum computing and machine learning Nurturing Quantum Talent pool FAQs Quantum machine learning...