Making financial literacy a company-wide priority 

Jordan Cracknell explores the relevance of financial literacy across all business functions

 

Across all sorts of organisations, it’s typical to find clearly defined departments. There’s HR, Sales, IT, Marketing, Finance, etc. and often they all operate within their own silos. And there’s something else they all have in common - treating financial concepts as a niche skill valued only by the eponymous department. In my view, this is a shame and detrimental to today’s companies.  

 

Financial literacy must be a core business competency, like all teams know how to operate a printer or use Microsoft Word. And it’s not about sitting down with a calculator in an attempt to reconcile a bigger number. It’s not even about everyone understanding every detail about the company’s numbers. 

 

Employees need to understand how the money flows through their company.  They should know how each department, not only theirs, adds value, including how everyday decisions can affect the output. With this competency in place, collaborations become smoother and end goals are better aligned.

 

Each department, each person, participates in the equation of creating value. Whether someone is in HR, Marketing, or even IT,  there are budgetary decisions being made every week. 

 

Perhaps you’re deciding which vendor to use for your internet provider. Or, if you can hire another person for your team. These critical choices are often made without any formal training in finance. The end result? Inefficiency. 

 

Let’s use HR as an example. These professionals are dealing with some of the largest long-term cost drivers. There are salaries and benefits taken into consideration, for example ‘How will the workforce be affected if person A is hired instead of person B?’

 

With a groundwork of knowledge, the team can figure out revenue per employee. Or what the cost of turnover is. Or exactly just how many accountants - or whatever role being recruited - can be hired during the busy season. 

 

In marketing, budgets reign supreme. Knowing about cost and return allows teams to better analyse advertising campaigns to determine which have performed best. Perhaps there is an underperforming customer segment that needs better targeting. With analytics, one can find out why and how to improve things.  

 

The sales department needs to understand pricing models and profit margins. It is key to them successfully structuring deals which close quickly and make long-term financial sense. It also means incentives for workers can be realistic and motivational, instead of stultifying and fantastical. 

 

Or, if you’re a designer, you can ask yourself, ’What’s the trade-off between innovation and investment?’ Again, understanding financial principles helps with figuring out the ROI. Let’s say your department is deciding between two different widget designs. How do you prioritise? Artists often struggle with reconciling creativity with commercial reality, but why should they? In my view, it’s possible to combine both approaches.

 

All this is to say that when financial literacy is only concentrated in one corner of business, it creates company wide blind spots. The risk of poor-decision making elsewhere increases. Managers inadvertently exceed budgets, misinterpret trends or commit to under-delivering initiatives. Maybe a profitable opportunity is missed due to a misunderstanding. This siloed thinking is unsustainable for a healthy business seeking financial growth and success.. 

 

So, what steps should a company take to resolve this? Well, the good news is that not everyone needs to study for the CPA exam! However, I would suggest a good baseline is the ability to read a P&L (profit and loss) statement and understand basic cash flow concepts. Practical strategies would include internal training and workshops, tailored to each department. 

 

In such seminars, the basics of financial statements need to be explained, so that everyone can understand a balance statement, a cash flow statement and an income statement. And demonstrating how the finances of each team fit into the wider financial landscape of the company can be an enlightening and informative experience for many employees who have rarely given this any consideration. 

 

Of course the main challenge around this, is the time and effort it takes the firm to organise such events. But it will become evident quickly just how much of a necessity it is for the firm. The company will not only build better teams, but also build a stronger business, better equipped for long-term success.

 

So within your business, consider how sharing the big financial picture across all teams, and incorporating more financial education among all employees could actually transform the way they view the business, the way they see their role and contribution within the business, and ultimately the overall success of the business going forward.

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Jordan Cracknell is UK CEO of a global financial management company. She works in London and is on a mission to redress the gender imbalance within the finance sector. To find out more about her, visit jordancracknell.com/  

 

Main image courtesy of iStockPhoto.com and Jirapong Manustrong