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Why Finance For Non Finance Manager

Why is it essential that non finance managers must understand financial management? I stress the word “must” as opposed to “should” because if we make the wrong decisions, they will cost heavy in these strange economic times. We need to maintain competitive advantage.

We Live in unprecedented times

Recessions have always came and gone in cycles, and the economy has always seemed to pick up in the past. However since 2008 the World has experienced a recession almost to the same effect as was seen in 1929. It was called the Financial Meltdown. Worse, there is no positive talk that it will end soon. There is even talk of a Financial Cliff where increased taxes and reduction of financing will send the USA into a further deeper recession, and there is a saying, when the USA sneezes, the rest of the World catches a cold.

The financial crisis brought turmoil to the world's financial markets, starting mostly with the collapse of Lehman Brothers that triggered a global recession in many economies. Large banks which were thought “too big to fail” failed, banks were nationalised, large insurance companies like AIG had to be bailed out by the government. This all led to a tight restriction of cash, resulting in redundancies, and shrinking of the stock market. Along with this, we are seeing increases in fuel costs, heating bills and escalating food costs – this is what we now call being in the credit crunch.

For the average person and family, things are tough but the focus of this article is not on personal finance, but rather for the organisations and companies that provide jobs.

Things have been tough for enterprises of all sizes and as the credit crunch shows no immediate sign of easing the situation is likely to remain so for the foreseeable future.

Some famous name companies like Lehman Brothers, Comet, Focus, Woolworths have already gone out of business and no doubt there will continue to be high levels of business failures. Northern Rock, Lloyds, Royal Bank of Scotland all had to be nationalised.

Lack of credit finance, fear of redundancies and loss of consumer confidence have all been blamed for the demise of many companies across several business sectors. To some extent this is true, but the underlying cause was greed, accounting fraud, over extending credit and exceeding debt, selling financial instruments that had no value. But when the interest rates went up in the USA then the defaults escalated on mortgage payments, and people began to realise that the financial instruments being held were worthless. These financial instruments which were called securitised debt could no longer be traded and what we call today Toxic assets or debts melted the heavy hitters.

However research shows that in any economic climate a lack of essential business finance skills is a major factor in the failure of many businesses. And when things get tough it is these key financial skills that will sort out the winners from the losers.

In these tough times there have been many companies that have thrived and have absorbed the failing ones.

So what do we mean by “essential business finance skills”? There is a saying worth remembering – Profit is vanity and cash is sanity. What is the difference between profit and cash? Profit is an accounting term, essentially the difference between sales and costs, and in that process all sorts of things happen to cash, bringing in creditors, debtors and stocks.

Essential Business Finance Skills:

1.The efficient control of working capital and cash flow is essential. Cash flow is the “lifeblood” of the business and many businesses fail due to lack of cash. If you do not understand how working capital affects cash flow then you are much more likely to fail because you ran out of cash, even though you may have been profitable!

2. Making the right pricing decisions so that we not only achieve strong sales but also produce the strong gross margins we need to cover the fixed costs of the business and generate strong profit. We maintain the right market share and strategy.

3. At the heart of any successful business the cash has to come from the core profit being made by the organisations.

4. Finally, the ability to interpret the financial statements that give us the information we need to apply these business finance skills. To enable us to make the right informed decisions.

These finance skills are critical in making the right decisions that will help your business to survive and thrive in any economic climate. Whether you are a sole trader or a big FTSE 100 company, sound business principles is what is needed to survive and thrive.

Once mastered, and in the hands of an experienced manager these financial skills can provide the formidable competitive advantage that comes from superior business decision making, quick thinking and the ability to adjust.

There are a number of courses you can take on Finance for non Finance Managers, we run one called the Master Class in Finance visit our website below.

Manjit Biant

http://www.finance4nonfinancemanagers.com


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We provide training courses in finance, accounting, business, leadership, strategy and risk.

Our training and consultancy is aimed at both the corporate and personal finance level. We assist and help the finance manager, finance director, and other non-finance manager that needs help in understanding finance. We help with all areas of finance management, finance education, corporate finance, finance for business and all finance accounting and management issues.

->   http://www.trainingdirectoryuk.com/blog/why-finance-for-non-finance-manager/497/

 



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