Managers make important decisions on a daily basis that might affect a company’s financial performance. A financial decision can be as simple as writing an invoice or it could be a decision to approve or decline a capital investment. Either way, the role of a manager is very important from a financial perspective. There are certain financial skills that every manager must master in order to stop making poor financial decisions or waste resources. For these reasons, Akhtaboot highlights a few for you below:
If you want to plan a budget, you must first understand the cost of the project that you want to launch. Your budget is your understanding of the resources, time, people, and materials that you will need. You can always allocate this task to the financial department, however, since they wouldn’t know the full details of the project, it would be preferable if you own the task of planning the budget yourself. Keep in mind that budgets should always be aligned with the overall company’s strategic plan and objectives.
Return on Investment (ROI)
Before you decide to take up a project, you must measure the feasibility of the project. Since you’re going to invest in the project, you need to know how much you’re going to get back from this investment. The important question is, how can you tell if it’s going to be financially feasible or not? You need to calculate its Net Present Value (NPV). The NPV of a project is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used as part of your budgeting process, in order to analyze the profitability of a certain project.
Reading Basic Financial Statements
As a manager, you must be familiar with basic financial statements. Financial statements are comprised of a balance sheet, an income statement, a statement of cash flows and a statement of retained earnings. Understanding these basic financial statements will allow you to efficiently communicate with your financial and accounting departments. These financial statements are to be used by investors, creditors, and external decision makers.
In order to maintain control over a business, a variance analysis is used to investigate the difference between actual and planned behavior. For instance, if your sales budget is $20,000 and the actual sales were $10,000 then the variance analysis yields a difference of $10,000. Variance analysis will allow you, as a manager to understand why fluctuations occur in the business. Some examples of commonly derived variances include selling price variance, labor rate variance, and purchase price variables. As a manager, you must analyze these variances against your budget. You must be able to answer questions such as: Will this variance occur again for the rest of the year? Should this variance be included in the financial forecast of the fiscal year?
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