You know how to manage people. But do you know how to manage money?
In today’s flattening organizations, managers are increasingly expected to set budgets and understand other aspects of corporate finance. We turned to Gene Siciliano, author of Finance for Non-Financial Managers, for tips on how to strengthen your number-crunching prowess. He is president of WesternAssociates, a financial management consulting firm in Los Angeles.
Managing People at Work interviewed Siciliano:
MPAW: What are some key financial concepts that non-financial managers must know?
Siciliano: You need to understand the difference between net profit and net cash flow. A business can have a consistent net profit and still go out of business because it runs out of cash.
MPAW: Seems simple enough.
Siciliano: We joke about the line, “If you don’t make money on each box you sell, you can’t make it up on volume.” Don’t assume if you can just sell more, your company will be fine. Increasing sales volume doesn’t necessarily mean more profit for the business, unless you’re sure each sale is contributing something beyond the actual cost to produce and deliver it.
MPAW: What else do managers need to know about finance?Siciliano: It’s tough for them to know the actual cost of what their company sells. They resist because they don’t like to get involved in financial stuff. Plus, it takes work to pull all that information together.
MPAW: Why should non-financial managers make that effort?Siciliano: Because CEOs want managers to be in tune with the bottom-line business operation and how they can influence it. A CEO wants managers asking questions about how they can impact the bottom line, whether it’s a sales manager who wants to know which accounts are slow in paying or a manufacturing manager who wants to develop more sources for buying raw materials.
MPAW: What’s the best way for managers to learn about finance?
Siciliano: Sit with the accounting people and say you want to learn more about how your department contributes to the bottom line. Tell them, “I need your help.” It may take time for the relationship to build, but it’s worth it.