THE FINANCIAL STATEMENTS
KEY FINANCIAL INDICATORS
ACCOUNTING ISSUES
WHAT-IF ... SENSITIVITY MODELS
TIMING MATTERS
JUSTIFYING INVESTMENT
SCORECARDS AND VALUE MANAGEMENT

Financial Savvy

Lesson Progress
0% Complete

Savvy is a word that encompasses not only knowledge but shrewdness and practical understanding. A savvy person is someone who sees beyond the obvious and the superficial and can quickly get to the nub of a matter. Financial savvy recognizes that the accounts are a poor representation of reality. The numbers help you to ask the right questions but they don’t provide the answers. Being savvy means understanding the story behind the number.

In the financial modules, my aim is to help you to:

  • develop robust business cases and justify investment in equipment, marketing, IT, training …
  • create practical what-if models that lead to realistic forecasts, budgets and plans
  • understand and interpret financial statements and KFIs (Key Financial Indicators); your performance will be evaluated according to these so it is essential that you understand the scoring system
  • learn the language of finance so that you are able to engage in constructive discussions with finance professionals
  • recognise the limitations of the so-called ‘hard numbers’ and the importance of non-financial drivers such as brand, relationships, expertise, culture and systems

What’s covered

We begin with a consideration of the main financial statements. These record the trading performance of a business, its assets and liabilities and how money has been used during the period. Later, we build on this knowledge and look forwards, exploring forecasting and planning techniques. You’ll learn how to build a flexible spreadsheet model incorporating sales and cash flow forecasts and projected income statement and balance sheet. Furthermore, your what-if model will allow you to change factors such as prices or expenses and see instantly the effect on the bottom-line. Such models are a valuable tool in the development of robust budgets.

In the Measurement section, we examine KFIs and the ratios that are commonly used to provide insight into financial performance. We conclude our sections on accounting finance by taking an holistic view and examining how the accounts can present a distorted picture of a business. Whilst the financial statements are regarded by many as the ‘hard’ numbers, the truth is that there are many subjective inputs and virtually every number is capable of being interpreted in different ways. Without the ability to question and challenge the numbers you will be at a severe disadvantage.

When purchasing capital assets or undertaking projects such as marketing campaigns or training programmes, one should take a longer-term perspective. We will review six investment criteria which take into account risk and the time value of money. They will help you to justify investments in, for example, brand, people, culture, systems, relationships and customer service. These are the drivers of shareholder value and yet appear only indirectly in the financial statements. Finally, we will examine approaches to business valuation and factors to consider when acquiring or selling a business.

What isn’t covered

The financial modules are intended to help you to make good commercial decisions. They will not address drawing up statutory accounts or tax calculations; these are complex areas and a little knowledge can be a dangerous thing. There is a reason your accountant spent several years studying.

However, you cannot delegate your commercial responsibility. If you are in marketing, HR, IT, production, R&D, logistics or any other department, you have to be able to argue knowledgeably and persuasively for what you believe to the best approach in your area. And if you are running your own business then the need for financial savvy is even clearer. 

The Dip

I have delivered tens of finance workshops and I know that for many people, finance is challenging. It’s not that finance is difficult, it is more to do with jargon. It’s hard to learn when one is trying to remember what particular terms mean. So typically, the learning experience in a workshop goes something like this:

So, don’t be too concerned if you find the going a little tough at the beginning. To try to make things easier, the finance modules are interspersed with other topics, giving more time for the terms to become established in your brain.