You're no idiot, of course. You hire and manage talented people, carry out your daily tasks with grace, and even find ways to shine under deadline pressure. But when it comes to finance and accounting, you feel like you're in the red. Don't throw in the towel yet! The Complete Idiot's Guide to Finance and Accounting helps you create a budget, manage a payroll, and develop a financial managementfrom the perspective of a nonfinancial manager. In this Complete Idiot's Guide you get:
About the Author
Read an Excerpt
Mastering Financial Management
In This Chapter
- Recognizing your financial responsibilities
- Understanding the financials
- Learning why you need to manage finances
- Getting ahead and staying there
Did you remember to master financial management? Do you have at those same finger-tips the same level of mastery for the accounting, financial planning, and forecasting side of your business? If not, you've still got some important lessons to learn, and you better start now.
Financial management, even for nonfinancial managers, is a crucial part of any job you have in your company. It's the glue that holds together the business side of your disci-pline, and its goals are the framework around which you must build your efforts.
Recognizing a Necessary EvilFrank was the editor of a large finance industry weekly and filled with the vinegar he needed to savagely compete against his closest rival. He was a demanding manager filled with a journalistic flare. His reporters even went to jail…just so they could write about the experience. He expected no less of himself and worked long, hard hours to make the publication a success.
Frank knew a good story and spared no expense to go after it. He was acclaimed in the financial services industry, but often spent too much of his publication's own financial resources going after a story. Frank paid little attention to how much he and his staff were spending, waving off his publisher and accounting department on a regular basis when they called this to his attention. He felt his job was to get the story and spent whatever it took to pursue the higher purpose of newsgathering.
Frank could manage the news, but he couldn't manage the financial side of his editorial responsibilities. Frank soon was replaced by another manager who, while not as strong on the editorial side, knew the value of a dollar and the role it played on a balance sheet. He had mastered financial management for the sake of the newsgathering responsibilities. In the end, the publication and its readers were better off.
Accounting properly performed is not a cost item or overhead expense (as some executives like to think). If your company's accountants prepare a monthly report and managers use the findings to adjust the operations of the business to a more profitable scenario, then the accounting operations directly contribute to help the company make money.
It doesn't matter what your professional responsibilities are. If you're in management at any level—and especially if you're running your own business—financial management is one of your most important responsibilities. In fact, some would say it is THE most important responsibility. Without it, you won't be able to practice the profession for which you've spent so many years preparing.
Frank's experience is typical of nonfinancial managers, but there's another group I hope will benefit from this book. That's the entrepreneurs and small business owners, profes-sionals who at one time may have been nonfinancial managers, but who have decided to go off on their own. They have similar financial management needs, and we will be moving back and forth between the nonfinancial manager orientation and the entrepre-neur orientation throughout this book.
Understanding the Financial Side of BusinessAny company, large or small, has trained professionals whose task it is to manage the money-go-round that keeps their organization afloat. Whether the title is accounting manager, controller, or chief financial officer, the responsibilities center around the same concerns. The financial department is the hub around which all financial activity re-volves. The larger the company, the more sophisticated and complex those revolutions may be.
These financial professionals will be the first to say that the financial side of any business is important to every employee. Whether it's good resource utilization that reduces expenses or the ability to present a positive public image for the company so people will buy more company products, thus increasing revenues, it's clear the company's financial success is influenced by everyone who works there.
If you're in a management position, however, that responsibility runs a little deeper. You have direct responsibility for managing key streams of resource expenditure or income generation. Take too careless or casual an attitude and your department may spring a financial leak that can begin to drain business finances dry.
In fact, no matter who you are or what you do, as a manager, you can't afford not to be on top of your financial position at all times. Eventually, you'll find you're not only capable of managing that function, but you also have begun to enjoy it. In time, you may recognize this as the single most important function for which you're responsible. But let's walk a little bit before we try to run.
Solid Reasons to Manage FinancesSomewhere inside you, a little voice is cringing at financial management and accounting. That voice is telling you it's right, good, and proper to understand finances as well as you understand the individuals who report to you and the products or services you manage. You don't want to believe it because finances can be complex, boring, even frightening. But you know it's true. Here's why:
- Your management responsibilities contribute directly to your company's profitability.
- Understanding how the company's finances work is simply good management practice.
- The rationale for understanding financial matters may be as simple as making the accounting department your ally.
- Understanding your department’s finances puts you in a good position to under-stand other departments’ finances, thus other departments.
- You'll be better able to manage your department if you understand the financial implications of your actions.
Often managers leave finances to the accounting depart-ment and never think again about their company's financial position until the company declares Chapter 11—bankruptcy. As an executive or owner, your primary responsibility may not be accounting, but accounting for your specific functions in the company is a key component of your job. If you want to keep your job, that is.
In some office in another state, another country, or perhaps just down the hall, the company president is nursing a grand vision for making your company a financial success for its stockholders, employees, and the customers it serves. In the vision, you and your fellow nonfinancial managers sit squarely in the middle, key components to helping or hindering progress. Are you a conduit or a roadblock? Your financial acumen can make a big difference in how you answer this question.
If you're in marketing, it helps your efforts to know how the products you sell are devel-oped, assembled, packaged, and shipped. If you're in development, it helps to know what the marketing department is doing with your work. It will help you achieve the com-pany's financial goals if you know the financial implications of what happens in your department and the other departments in the company.
If the folks in accounting have routinely stepped down hard when it comes to develop-ment expenditures, marketing plans, and other cash outlays you want or need to make, then maybe it would help to see it from their point of view. Knowing how to manage your finances makes you and the finance and accounting departments allies (rather than adversaries) in achieving the goals of your department and the company as a whole.
Nothing impresses financial professionals more than a manager who sees it from their point of view, who finally gets what they're nagging everyone about. And no matter how much you may dislike the discipline they stand for, they're powerful allies to have.
Top management will think more highly of you if you bring overall financial acumen to your position. Moreover, since financial principles are fairly standard for companies throughout North America, you may be the one they choose to take over other departments floundering in financial waters. ("She may not know anything about building widgets, but at least she has a clear grasp of the finances.") Consider your financial expertise a gateway to other oppor-tunities. Remember: Most managers hire an applicant not only for the position currently open, but also with a view toward promotion and greater responsibilities later. Knowl-edge of financial matters transfers very well—and that makes the person who hired you look very smart!
Too many nonfinan-cial managers are intimidated by the language of account-ing— credit, debit, amortization, accrual, and the like. But the concepts behind accounting are basic. Pay attention to those, not the vocabulary. You'll be better off.
That's the primary reason you picked up this book and the true reason to master business finance. Financial ebb and flow affect the growth and operation of your department, from product-development decisions all the way to hiring and firing. It's not only the right thing to do; it's also necessary, given that your depart-ment is interwoven with other aspects of the company. Financial decisions you make will affect other department's financial well-being. Make sure you're making the right decisions for all parties concerned.
Use What You've GotYou can never be too financially savvy for your business. For example, when a magazine decided to hire a new editor, they chose Mary, who had both a journalism degree and an accounting background. In addition to having better product knowledge about the financial industry on which the publication focused, she also had a much better sense of the procedures for managing the department's finances.
Knowing Mary's background, the accounting department managers never questioned Mary's judgment. In fact, they never even looked that closely at her accounts, as long as her bottom line was within budget. For anyone who's jousted regularly with an account-ing department, that kind of freedom from scrutiny can be a little slice of business heaven.
The amount of financial knowledge you need to have will be relative to your responsibili-ties. In past decades, a background in finance and accounting was a quick avenue to a corner executive office. These days, however, more and different disciplines are leading the charge, with marketing moving to the head of the pack in many consumer sales-based industries. That's not to say that finances are becoming a less important consider-ation. Today, those who make it to the top have financial acumen to go with their marketing or other operational expertise.
Building a FoundationWhat components of financial management do you need to know about? Here are some of the elements with brief explanations:
A basic knowledge of accounting practices and principles is worth the effort that it takes to learn them.
In addition to earning the unbridled respect of your company's accounting profession-als— and that goes a lot further than you might think—understanding how things are done and why from an accounting perspective will broaden your understanding of financial management. You already know why you budget so many dollars per year for sales calls, but understanding how those figures affect the rest of the company will help you make better decisions for your department and for the company as a whole.
Build up to financial manage-ment incremen-tally by mastering basic concepts and principles first and then moving up the ladder. Slowly but surely the pieces will fall into place...
Table of Contents
|Part 1: Getting Started||1||(36)|
|Part 2: Accounting for Your Success||37||(62)|
|Part 3: Managing with Accounting||99||(40)|
|Part 4: Sources of Funds and Acumen||139||(36)|
|Part 5: Your Company's Tax Obligations||175||(26)|
|Part 6: Strategies for Growth||201||(62)|
|A What's My Data?||263||(8)|
|B Flexing Your Financial Muscles||271||(10)|
Most Helpful Customer Reviews