Finance and Accounting course Frequently Asked Questions

Why do non-financial people need to know the fundamentals of finance in order to perform well in the modern business world?

It is important to be financially aware in this day and age. Firstly, you need to know what is required to satisfy the people who actually finance your job - the investors in your company, and secondly, you need to understand and argue your business case with the financial people within your organisation.

The investor in any company is looking at two indicators - one, that it is a secure and healthy place to put capital, and two, that the performance of the company will give a return that reflects the perceived risks the investor is taking. The only time investors will want to intervene and make changes to your company is when they feel insecure about these two things - so you've got to make sure that you are aware of these financial requirements. Furthermore, financial people who are not experts in your field are the allocators of capital and if you feel you have a justification for securing capital then you need the tools to argue that position for yourself and your business unit.

What are the basics that people need to understand?

People need to understand the content and linkages in the key financial statements and how to interpret them to measure financial health and performance. The three key financial statements are: the profit and loss account or income statement as it is sometimes called, the balance sheet, and the cash flow.

We also need to know about the characteristics of cost at the product level and how to interpret them. Companies don't make profit - it is products that make profit. So what does a product cost? If you don't know that, you've no idea where your profits are coming from.

Another critical requirement is - what is profit and what is cash, and what is the vital difference between the two? A lot of people mistakenly think that profit is all-important, and don't realise that cash is king. At the end of the day what keeps you alive is cash and cash flow. That's why we need to understand how to plan both profit and cash, and control and manage them.

Additionally, people should understand how to financially evaluate project decisions, and how to use project evaluation techniques to do so. In the end, a company is the sum total of its projects. So if you want to be a 15% ROI company you'd better have a portfolio of projects that are going to deliver 15% ROI now and in the future.

Do you see the role of the manager changing or developing in the financial management of the business?

I think that we are going to see a lot more clusters formed in business, where people are asked to carry out projects or manage portfolios and teams involving many skills. So there will be less emphasis on, for example, marketing or HR or engineering or finance as a functional activity and more emphasis on managers being able to perform in a multi-disciplined way. And what do managers need to know at the end of the day? They need to understand their markets and technology, and how people behave. But they also need to know how finance works - you just can't be financially illiterate any more.

Another important development in the post-Enron period will be a lot more attention being paid to financial rectitude. And so the people who are given the responsibility of managing a company will need to be financially aware. If I was given the job of running a large company one of the first things I would ask is how financially aware are the people who manage our profits and cash? And if they were not financially aware then I would want that gap closed fast.

Acquiring financial awareness should not be just a mechanical number-crunching exercise. It is about how markets affect the health of companies, how technology affects the performance of companies, the interaction between the financial function and other functions and so on. People have to realise, for example, how their decisions affect the balance sheet, the profit and loss account, and the cash flow – and that they cannot exist in the 'new' world without that knowledge. This also serves as protection for top management - that people down the line know what's going on! In short, non-financial people need to be more aware and confident about finance, and they need to know where to go to ask the right questions, and be sure that they get the right answers.


Albert Humphrey is an expert in business development. His fundamentals of finance for non-financial managers' is known across a broad section of UK industry as the course for non-financial managers who need an understanding of financial principles.