Wednesday January 2nd, 2019
You probably didn’t get into management to be a bookkeeper. That’s what finance departments are for, right? But, while finances may not be – and don’t necessarily have to be – your strong suit, there are a few tricks of the trade you should have under your belt when you take on a management position. After all, your role as a manager means you are responsible for ensuring that all areas of the company you manage are running smoothly and working together effectively.
So, aside from the understanding of the obvious core principle of any business – bring in more money than you put out – what are some other financial skills you should acquire as a manager?
In order to run a successful business, there needs to be a balance between what comes in and what goes out. Your accountants and finance departments may be fully competent in their work, but it is important that you play an integral role in forecasting the financial future of your company.
Your financial forecast is an estimate based on actual numbers – expenses and income from the past and present that allow you to project future revenue trends. The data from your past and present financial reports will have immediate and long-term impact on the company, and therefore are vitally important to the daily operations of your team.
Be an active participant in not only reading finance reports, but also in analyzing the trends that will help establish your future budgets. Understanding the numbers will help you manage more efficiently, as you root out wasteful practices and lead your team to function in a more cost-effective manner. It will also help you set goals and create incentives for your team to accomplish and acquire.
As a manager, you may encounter many scenarios where you have the opportunity to make a great deal for the company. Every great manager should have the ability to negotiate a deal – whether that negotiation be with an employee, a customer or another company. The ability to recognize opportunity and seize it in a manner that benefits the company is a valuable tool.
Part of becoming a great negotiator is understanding what your company brings to the table and what you cannot stand to lose. Without in-depth knowledge of the financial statements and projections of your company, you cannot effectively negotiate the best deal for your team. Negotiations could range from negotiating a salary while recruiting talent to negotiating a deal with a vendor to receive services for a lower rate. Negotiating is about leveraging your knowledge of financial data with your ability to communicate effectively. A manager who can master this skill will have a massive positive impact on not only the company culture, but the bottom line of the company itself.
While your HR department is likely responsible for the ins-and-outs of your employee compensation, it would be wise to make sure you know how the process is run and how it impacts your bottom line. Understanding employee compensation helps you become a better negotiator. Additionally, this knowledge will help you know what each member of your team is paid and what is feasible in terms of pay raises for your existing employees, as well as what is reasonable for newcomers to expect.
Understanding compensation also helps you while working on your financial forecast. A large portion of your expenses will go towards employee compensation, so it is important to know exactly how much money is designated for paying your team. With that information, you will be better able to analyze the return on investment and either hire new members to join the team or let go of employees who are holding back the success of the company. Without that information, you are left guessing on major decisions that will directly impact your team and its effectiveness in the workplace.
Many managers assume that great communication skills and a willingness to lead are enough to make them great at their job. While those things are crucial to the success of any manager, it’s also important to arm yourself with the financial knowledge of the company. It will help you make more informed decisions and prevent unnecessary financial losses in the long run.