Financial Leadership – What is It?

Financial Leadership - What is It?

Nicole Nelson, General Partner, 2 Liquid Assets

Financial Leadership isn’t having all the answers, but asking the right questions.

What is Financial Leadership?

Do you have a project manager who underestimates the cash flow impact of delayed invoicing?  Or do you have a division head who misreports results because they don’t understand the mechanics of accruals?

There are many roles within an organization.  From project management all the way to the C-Suite, many of these roles benefit from your workforce demonstrating financial skills, even without a background or degree in finance or accounting.  You may understand this conceptually, yet struggle how to define what those specific skills are, the increased value it could bring to the organization, and how those leaders differ from the people who work in the finance or accounting department.

We classify this skillset as Financial Leadership.  Great!  We have a fancy term we can use…but what does it really mean?

Differentiation

To help define Financial Leadership, it is important to distinguish what it is and what it isn’t.

As noted, you probably already have several team members within your organization that reside in your finance or accounting departments.  They have degrees, certifications, experience, and interest in finance and accounting topics.  They spend their time engaged with the organization’s financial statements and other metrics to drive reporting and analysis for decision making.  We call these the Financial Experts within the organization.  Most likely, they are quick to respond to questions with figures, calculations, data, analyses, and assessments.  However, they may sometimes lack the skills or background in other operational information to execute on strategy, communicate with non-financial groups, or make key business decisions.

At the same time, you have other leaders within the organization that are highly focused on operations.  Project, site or store managers are developing or building products or delivering services while managing the provided budget.  Divisional or regional managers are allocating resources, budgeting, monitoring performance, and executing strategy.  C-Suite leaders are making strategic plans, identifying opportunities, and evaluating risk.

All of these business decisions require some level of financial understanding.  However, financial education, experience, and interest of those in these roles can vary greatly and have many gaps.  This may result in unproductive assets, misallocation of resources, incorrect or untimely decision making, and/or a lack of success.  In the worst cases, it could result in business disruption or even failure.

This is where leaders in these roles need to develop a competency for Financial Leadership.    Where Financial Expertise is the ability to provide the financial and accounting answers an organization needs, Financial Leadership is the ability to ask the right financial questions to generate the critical information needed to execute on your organization’s strategy with precision.  A financially educated team makes better business decisions.

Financial Leadership - What is It?

Financial Leadership can be transformative for an organization.  Defining this skill set allows your organization to view all activities through a new lens, identifying ways that you can cross-train and upskill your employees to fill in those gaps. 

What makes up Financial Leadership?  It requires having an understanding of both Financial Literacy and Accounting Literacy.

Financial Literacy is what people typically think of when it comes to a knowledge of the workings of business.  Ratios, selecting financing options, valuation models, discounting…it is often defined broadly and can quickly get complicated as it encompasses investment theory, retirement considerations, political overtones, etc. 

Accounting Literacy is a widely unrecognized skill, but underpins Financial Literacy, financial capability, and business acumen.  Often people mistake it by thinking it is merely a focus on math or numbers. It instead includes understanding the position and movement of a business and an awareness of how financial data is organized.  The barriers to comprehending accounting can be overcome by understanding the language, structure and mechanics of accounting.

To distinguish the two, consider the following example.  Financial Literacy would be understanding HOW a savings account works.  Accounting Literacy is knowing WHAT is in your savings account and WHAT is going in and out of the account each day.

Many experts are identifying the importance and value of bringing these skills to the leaders within your organization.  Reframing Financial Literacy As Strategic Leadership from Forbes and Financial Literacy: The Overlooked Foundation of Effective Leadership from Wallstreetlogic.com are two examples of market recognition of the need for this skill set in the workplace.

What You Can Do

Once you are able to define what Financial Leadership is and why it is valuable to your organization, the next question should be, how do I train my leaders?

The Wealthvox Let’s Talk Finance Series using the Color Accounting Learning System delivers the basics of the Balance Sheet and Income Statement to your team in an engaging and exciting format.  We provide participants with an understanding of how transactions are used to generate organizational results, how they flow to generate value to the business, and how they can be read and interpreted to provide key information; all in a discussion based, kinesthetic learning environment.

The Let’s Talk Finance Series differentiates itself by starting with a base in Accounting Literacy to lay a foundation that other financial education programs overlook.

Participants who would not normally self-identify as expressing interest in financial topics or having been in a position to learn key financial skills through their experience, find that this course breaks through barriers and leaves them with financial knowledge they didn’t even know they were capable of achieving.

The introductory workshop leaves participants with a transformed view of the financial statements, increasing understanding and confidence.  A project manager will better understand how managing an individual cost impacts their budget.  A division manager may identify an unusual margin flux that is costing the organization.  An executive may identify a way that cash flow can be better utilized to generate return.  Follow-on courses and customization can further enhance participant learning; leading to improved ratio analysis, investor relations, and regulatory application.

This isn’t just theoretical, a recent Senior Executive participant noted "For the first time in living memory, my business unit is going to hit budget this year. I've managed to save $3.7m of opex directly as a result of this course."

As more of your workforce is trained in Financial Leadership, your organization will experience a transformation in viewing the business with thoughtful and meaningful financial insights.

Conclusion

A workforce that is trained in Accounting and Financial Literacy will build skills in Financial Leadership, knowing what questions to ask to maximize efficiency, productivity, and profits.  It is a value proposition that always delivers, with results that promote exponential growth as it moves through the organization.  Don’t delay in starting the process of training up your leaders in Financial Leadership.  Reach out today to book your Let’s Talk Finance workshop and get started!