How to become financially intelligent?Shashwat Mahaseth
Finance is the lifeblood of an organization and the need for financial intelligence for career success cannot be understated. Some benefits of being having financial intelligence are
- Taking financial decisions at the team/department level that may have an impact on the bottom line.
- Mentoring team-mates and supporting them to become financially intelligent.
- Being an aware leader who cannot be misguided by others.
These are only a few advantages we are listing here. However, it is essential to understand what is meant by financial intelligence. What are the basics of financial management and practices that make an individual financially intelligent? Moreover, how do you become financially intelligent in your current role in the organization?
Let’s start exploring one by one:
Who is a financially intelligent individual?
A financially intelligent individual is a person who can read and analyze financial reports and uses them to make better business decisions.
To explain it in greater detail let us look at the four typical skills that a financially intelligent individual should possess:
Ability to read the financial statements
The primary skill set of a financially intelligent individual is the ability to read the financial statements viz. balance sheet, cash flow statement, profit and loss (P&L) statement, etc. It is the understanding of these statements that paves the way to a better understanding of the business.
Analysis of Numbers
Just reading the balance sheet is not enough. A financially intelligent individual should be able to apply his understanding to develop a point of view on these statements. Often people with limited understanding fall into the trap of taking things at face value and hence miss the crucial aspects. A more in-depth analysis of numbers in the financial statement give an accurate representation of the state of a business.
Ability to relate the numbers to organization goals
This is key. The numbers are just the measurement of the outcome of how a business has performed. Each action that a person takes in his/her function has an economic significance. A financially intelligent individual understands the magnitude of the financial impact his actions bear. Also, he/she tries to keep it aligned with the organization goals.
Making choices that help the organization reach its goals
Once an individual understands the organization goals he is ready for applying this knowledge to his role within the organization. A sales manager can tweak the sales pitch; marketing department can experiment with cost-effective marketing channels, and a business head can judge the new initiative based on financial merit etc. All these everyday decisions at work have the most impact when individuals make financially aware decisions which create a deeper alignment to organizational goals. This can mean a difference between success and failure in this highly competitive world.
After examining the “What” of financial intelligence let’s look into “How” of financial intelligence.
How to empower oneself to become financially intelligent?
Financial intelligence is important, and the onus is on an individual to make himself financially intelligent. Following are some of how financial intelligence may be promoted within the organization.
Basic DIY Finance Training
This is the first step one can take on the path of becoming financially intelligent. One should be able to read and understand the financial statements. There are several finance basics courses available that one can go through. While there are several options available to educate oneself on the basics we highly recommend “Romancing the Balance Sheet” by Dr. Anil Lamba.
Finance Training in your Organization
Corporate training is an important way to understand financial management basics and its practical application concerning one’s organization and function. Trainings also put you in a better position to discuss relevant economic issues with the stakeholders and analyze your decisions from financial viewpoint.
Sessions on organization’s financial health and insights by Leadership
If not in place already, it is a good idea to ask leadership about the financial aspects of the company. It promotes open discussions related to financial goals of the company and sheds light on how the company plans to achieve them. Sessions on finance by leadership is a transparent way of letting everyone in the company clear their doubts regarding the company’s finances.
Tying Key Result Areas(KRAs) tied to financial responsibility
It is a common practice to use KRAs to determine the performance of an individual in a timeframe. The financial intelligence should considerably improve if employee KRAs are tied to organization’s financial goals. The KRAs act as a guiding star in your daily functioning. Also, financial goals, being measurable, help in making an objective assessment of the contribution of an individual. Make sure you map your KRAs to your organization’s business goals, which should push you to become more financially intelligent.
Finally, one should always try to promote the financially intelligent culture within the organization. Open up, talk to people about what they understand about the financial aspects of the company. This results in exponential gains both to the individual and the organization.
Are you in your journey to become a financially intelligent person? You can be immensely benefitted by the self-paced online course on ‘Good Finance Management’ by Dr. Anil Lamba. Dr. Lamba is a bestselling author, financial literacy activist, and a corporate trainer of international repute. He is a practicing Chartered Accountant and holds degrees in commerce, law and a doctorate in taxation. Dr. Lamba has trained more than 1000 large and medium-sized corporations on financial intelligence spread across the globe.