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Finance For Non Financial Managers - Basic guide

This article seeks to provide non financial managers and experts with an insight into the meaning of financial management. The article is designed to help you understand the importance of financial management so that you can take steps to improve your skills in all aspects of financial management principles and tools.

 It is not uncommon to find that many non financial experts and managers delegating responsibility for financial management to accountants because they believe they are not numerate enough to delve into the subject. This is one of the biggest mistakes that non financial managers can make and you will soon find out why you ought to horn your skills in this area. For one thing, a typical accountant is nothing more than a number cruncher and is not skilled at understanding what drives income into the organisation as well as many other aspects of business management. Often, this results in tension between the financial accountant and non financial managers and most of the tension can be alleviated if only non financial managers take time off to improve their financial skills.

Financial management is the study of management tools used by financial managers to analyse and manage the financial performance of a business. Financial management is therefore concerned with the effective and judicious management of financial resources organisations use to achieve corporate objectives.

Financial management helps organisations plan the resources required to meet corporate objectives. By comparing an organisation's actual performance against its budget, management is able to plan and better control resources and take corrective actions to achieve corporate goals. Financial management also aids organisations in identifying areas of operational weaknesses and strengths so that corrective actions can be taken promptly to achieve sustainable improvements.

The most common financial management tools used by organisations are budgeting, management accounts, annual accounts, financial ratios, long-term financial forecasts and investment appraisal techniques.

Organisations with weak financial management systems are exposed to a number of risks. Firstly, the organisation will be unable to assess accurately or in a timely manner whether its resources are being managed well to achieve the financial returns expected by its investors or stakeholders (lending institutions etc). This applies to both profit making businesses as well as not-for-profit businesses. This is because for an organisation to be operational, it must be financially viable.  Furthermore, even where an organisation is viable, weaknesses in its financial management system could lead to poor relationships between the business and its stakeholders. A charitable organisation that mismanaged its funds through poor accounting and control practices can suddenly lose favour with its key financial supporters.

In the same vein, where a business consistently fails to collect its outstanding fees for services there is a risk that some of the debts will not be recovered resulting in the business losing money.

The key users of financial statements are members of the management board/ trustees; the senior management team; employees and staff with budgetary responsibilities; some public sector bodies (tax office, national statistics office, regulators); key funders (donors, grant providers, shareholders, banks etc); suppliers of services; staff etc. The interest of users of financial statements varies considerably.   For instance, providers of finance in profit making businesses expect their financial wealth to increase through consistent healthy business profits. In the case of financial providers of a not- for-profit business (e.g. charities), the quality of services expected from the business is the main focus of attention as well as financial viability. At another extreme there is the staff who would like to maximise their salaries and no doubt work for an organisation with a good reputation.

In most organisations, the formal responsibility for effective financial management lies with an accountant.  Accountants are professionals whose work is regulated by various Accountancy Bodies. In the UK, the Accounting Standards Board regulates the profession. In the United States there are a number of regulatory bodies regulating the accounting profession the chief of which are the Financial Accounting Standards board (FASB) governing the private sector and the Governmental Accounting Standards Board (GASB) governing the governmental and non-profit sector. Generally Accepted Accounting Practices (GAAP), supplement these regulations.  Therefore, the way financial statements are put together is influenced by these regulatory bodies, whose primary objective is to safeguard the interest of users of financial statements by ensuring the financial statements reflect a true and fair view of a business for the period covered (the period over which the accounts is prepared).

With this in mind, it is important that non financial managers understand how the financial impacts of all decisions and transactions carried out so as to ensure that the organisation achieves it non financial and financial goals simultaneously. One way to do this is to educate yourself in all aspects of financial management. Attending training courses such as Finance For Non Financial Managers delivered by organisations like ours can help you quickly learn the tools of the game and apply the skills correctly within your organisation. To find out more about how we can assist you, visit us at:




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