Everyone in a company does better when they understand how financial success is measured, and how they have an impact on the company’s performance. The term the authors give to such an understanding is ‘financial intelligence’. Great financial intelligence helps people feel more committed and involved; it helps them understand what they are a part of, what the organisation is working to achieve and how they affect results. This leads to increased trust, decreased staff turnover, and an overall improvement in financial results.
Financial intelligence isn’t some innate ability you are born with; one that you have or don’t have. Of course, some people are more comfortable with numbers than others, but for most businesspeople, financial intelligence is nothing more than a set of skills that can be learned.
People who work in finance generally acquire these skills early on, and are able to converse with one another in a kind of financial jargon that sounds like Greek to the rest of us, even including many senior executives. Most of them either come from a financial background or pick up these skills along their way to the top simply because it’s tough to run a business when you don’t understand its financial standing. Many managers in finance, however, have not been as lucky; they have never picked up the skills, and in some ways, they still find themselves relegated to the sidelines. This is where financial intelligence comes in. It basically boils down to four distinct skill sets, which the book is aimed at helping readers accomplish.
The first skill involves understanding the basics. Managers who are financially intelligent understand the bare bones of financial measurement. They can read an income statement, for example, which shows the company's costs and revenues. They can also read the balance sheet, i.e. the financial statement that summarises the assets and liabilities of a company at a given time. The second skill requires an understanding of the art; finance and accounting are an art as well as a science. The two disciplines must try to quantify what cannot always be quantified, and so must rely on rules, estimates and assumptions. Financially intelligent managers can identify where the artful aspects of accounting have to be applied to the numbers, and they know that applying them differently can lead to different conclusions. This equips them with the ability to question and change the numbers, where appropriate.
Once you have understood these aspects, you can then apply the third skill, which is understanding analysis. At this stage you can use the information to analyse numbers in greater depth. Financially intelligent managers don’t shrink from ratios, return on investment (ROI) analysis, and such like. They use these analyses to help them make better decisions.
Last but not least, the fourth skill involves understanding the big picture. Financially intelligent managers are aware that numbers are not everything and, above all, they do not paint the whole picture. A business’ financial results must be looked at in context, in which other factors such as competitors, new technologies and customer expectations must also be considered. These elements influence the way in which the numbers are interpreted and consequently the decisions that will be made.
