Why you need financial skills to stand out and make an impact at work
With the economy now tighter than ever, all aspects of the workplace have come under financial scrutiny. If you can’t talk sensibly about numbers, your next career move won’t be upwards.
Fifteen years ago, being good at your job was all you needed to rise in the ranks, but not anymore. Nowadays, you also need financial skills to stand out from the pack.
If a fear of numbers is holding you back, it can be easily overcome once you realise the value that financial knowledge can add to your career and personal well-being.
I teach the Finance for Non-Financial Managers program at Melbourne Business School, and nothing gives me greater pleasure than seeing the delight in people's eyes as they discover the power of financial skills for the first time.
I start by getting participants to create a household budget of their income and expenses before moving to a balance sheet, which lists all they own and owe. These are the basic tools for determining the health of any company, too.
By the end of the program, a few days later, they can scan through a 100-page annual report from a company listed on the ASX and analyse the five or six pages that matter most in 15 minutes to tell me if the business is healthy or not.
It's not always a painless journey, but it's rewarding. The most powerful financial knowledge my students gain doesn’t come from understanding a budget – crucial as that it is for any modern manager's KPIs – it comes from understanding a balance sheet.
A budget is where most people first look to improve their financial position, but changes there usually involve some pain – either from working harder to earn more, or having less to spend to cut costs.
But knowledge of a balance sheet, showing your assets and liabilities, allows you to question if you're getting the best return from your investments and borrowings.
For example, most people go wrong in their personal finances by spending too much on their house – which is an unproductive asset, even if its value rises. If your house is worth a million dollars and you could still live nicely in a $700,000 place, wouldn’t you be better off investing the difference in a rental property that earns $15,000 a year?
Similarly, in the workplace, knowledge of a balance sheet allows you to analyse your organisation's assets and liabilities to see where any low-hanging fruit might lie. You can make quite an impression if you base decisions on that kind of knowledge when you move into a new role.
Analysing a company's financials before moving to a new job could also avoid some bad career moves, because a lot of companies have poor financials.
Once you understand a company's financial position, you can benchmark and compare its performance to other operators in the same industry. This knowledge allows you to focus on what's exceptional about a company – including in its budget, which is also called a profit and loss statement.
For example, if you know that most manufacturing companies spend about 40 per cent of their budget on the materials they need to produce their products, and notice that a particular company is only spending 10 per cent, you may realise that it has a significant advantage and greater opportunity to deliver an above-average profit.
The more familiar you are with a company's financials, the better you will get at identifying opportunities and avoiding traps. You might soon be devouring ratios like return of investment and return on equity without a hiccup – but it all starts with knowing the basics.