If you want to start a business or become part of an existing business’s senior team, then understanding business finance is a must. However, this can be a terrifying prospect for many businesspeople, novice or otherwise.
Importance of Financial Education for Business Owners
Funders (banks, private equity managers, etc.), accountants, and other financial professionals have a tendency to use a substantial amount of technical terminology that the average owner-manager is completely unfamiliar with. Phrases such as gearing return on capital employed, PE ratios or the acid test are not a part of everyday vocabulary and can therefore be off-putting to prospective business owners.
To appear knowledgeable, not everyone feels confident in admitting their ignorance of such matters. When faced with the language of finance, some individuals can quickly be blinded by the plethora of jargon. As a result, they succumb to unquestioning compliance in an attempt to avoid looking less educated than their counterparts. Understanding business finance is a process that takes time to comprehend and learn to a high level.
A good quality adviser should be aware of and sensitive to this issue in its wider sense. Sadly, too many financial people do not prioritise emotional intelligence. Instead, they use insufficient communication skills to deal with such matters in the right way. Therefore, it falls to the owner-manager themselves to find out what questions they need to ask and learn to ask these without fear.
What Questions Should You Ask?
To help you make a start on improving your understanding of your own finances, here are our top four questions to ask your accountant when they provide you with your management or year-end figures:
- Where is my profit if it isn’t cash in the bank?
- How many stock / WIP / debtor / creditor / days do I have? What does that mean in terms of cash tied up in the business?
- What is my monthly break-even number in pounds and pence?
- Is my liquidity improving? (So that you don’t get stumped by their response, this means: Do you have more cash available to spend? Whether they answer yes or no, ask why, so you know what action to take).
These questions won’t make you a Finance Director, but they should help you improve the performance of the business and stay abreast of any financial issues that could arise.
How fds Can Help
fds has decades of experience supporting businesses across a wide range of sectors. We are well-versed in demystifying financial complexities and turning uncertainty into clarity. fds is committed to giving you the knowledge to make informed decisions and drive your business forward with financial clarity and control.
For further information on this topic, please see Jo’s book: The Financial Times Guide to Finance for Non-Financial Managers.