Why should I train non-finance professionals?
What do they need to know about Finance?
Like all technical specialties, finance and accounting use terms and concepts for precision which often create confusion for those outside of the profession.
Managers and employees throughout any organization do not need to become financial professionals.
They do, however, need to know how their actions impact the financial performance of the company.
Your Impact on Cash Flow
Cash is the life blood of a company. Without access to cash a company can go out of business waiting for customers to pay for product or services. Cash flow is the cash a company must pay out each month compared to the cash they collect each month. If a company buys raw materials, builds a product then sells the product to a customer, they typically must pay for the materials and wages before they collect money from the customer. This means that there is a gap between when they pay out cash and when they receive cash. If the gap becomes too large or if the company has few cash reserves, they may not be able to pay employees and creditors. Even very large companies have gone out of business because of cash flow problems.
What can you do to improve cash flow? Think about what you can do to improve the company's ability to collect money owed from customers. Think about things you can do to negotiate better payment terms from customers. These will have a positive impact on cash flow.
Your Impact on Profits
Every person in the company has an impact on profits every day through the decisions they make and the actions they take. The profits of a company are the Revenues minus Expenses. Any action that increases revenues or decreases expenses will increase company profits. But on a day-to-day basis what can you do?
To reduce expenses, treat all supplies and materials as money. Look for places where materials are wasted, supplies not used, or resources wasted. When there are parts or metal on the production floor that will be thrown away, that represents cash. The company will have to spend money to buy more. If it is usable or can be sold as scrap you will save the company money. When each person in the company stockpiles supplies in their desk that are not used on a regular basis, that means cash is spent on items that may never be used. Just imagine if each employee buys $100 worth of extra supplies each. If there are 5,000 employees that represents $500,000 per month or $6,000,000 per year.
Another impact on profits is loss through either fraud or accident. If materials and supplies stolen or misplaced this has a direct impact on profitability. Be sure that adequate controls are in place to prevent theft or loss.
The productivity of all employees impacts both revenue and expenses. If more products or services are sold and the number of employees does not increase, profits will increase. Assess whether all employees are fully utilized.
Look for opportunities to increase revenue. Do you have contact with the customer? If you are a repair technician you see customers on a regular basis. You may have noticed other company products that would benefit the customer or perhaps they need to upgrade their equipment. Let the sales department know so they can contact the customer.
Your Impact on the Investment in Assets
Most companies have large amounts of money invested in assets. Assets are required for the company to operate, produce and deliver products. Assets include Fixed Assets and Current Assets. Fixed Assets are buildings, manufacturing equipment and office equipment. Current Assets are products for sale in Inventory, money owed by customers in Accounts Receivable and Cash.
To be profitable all employees need to focus on using the minimum amount of assets to generate the largest possible profit. This does not mean cutting assets so that more labor is required to do the same job. It does not mean avoiding investments in new equipment. It does not mean having very limited inventory so that customers rarely find what they want. It does mean being aware of what assets are being fully utilized, what assets need to be upgraded to make employees more productive, what inventory is selling and what is not needed, and which customers are paying on time.
Look for opportunities to get rid of equipment that is no longer needed or could be consolidated with another department. If you only use a piece of equipment 10% of the time, perhaps another department could share the cost. Try to determine if the new equipment is really needed by asking if it will increase productivity or reduce maintenance costs substantially.
The finance department does not ensure long-term profitability for the company. Every employee plays a roll in making the company successful by looking for opportunities to improve cash flow, increase profitability and minimize the investment in assets.
BLI Offers Workshops to Train the Non-finance Professional
After the workshop you will be able to:
- Analyze variances
- Track results against a budget
- Implement a budgeting process
- Use financial decision making tools
- Describe how a corporation operates
- Define key financial terms and concepts
- Describe the benefits and uses of budgets
- Differentiate between cash flows and profits
- Describe the key components of financial statements
- Describe ways to positively impact corporate performance
- Describe the link between financial measures and shareholder value