Why Financial Acumen Is More Important Than You Think

You’re sitting at your first meeting as a new member of your organization’s management team. You are thrilled to be in this new role and faced with new responsibilities outside of the functional job you once excelled in. The informal chit-chat quickly changes to talking about the health of the organization and financial statements start circulating. The head of finance is talking about cash flow, debt to equity ratio, and EBITDA. A blank look comes over your face.

Sound familiar? Don’t worry; this scenario is a common experience for new leaders.

To date, you’ve produced results in a role that did not require a deep understanding of the debt-to-equity ratio of your organization. However, if you want to succeed in this next phase it is important to have a basic awareness of the fundamentals of finance.

Table of contents

1. What is financial acumen?
2. Why is financial acumen important?
3. How can financial skills help you in your role?
4. How do you demonstrate financial acumen?
5. How do you develop financial acumen?

What is Financial Acumen?

Financial acumen is the knowledge and understanding of basic financial and accounting principles in order to have sound judgment when making business decisions. Those with financial acumen are able to see the impact a decision will have on the financial health of a team, department, or organization.

Why Is Financial Acumen Important?

As you move up in an organization the greater the impact your decisions have on the direction of a department or organization, how budgets are spent and resources are allocated, and the overall financial health of the organization.

When you are knowledgeable on a topic, you’re able to see the cause and effect of different decisions. When you make decisions without financial skills, you’re going in blindly. This is why financial acumen is so important. Simply put, financial acumen meaning is having basic financial skills to make good judgments and decisions quickly for your department and organization. It is a key component of having business acumen.

How Can Financial Skills Help You in Your Role?

Finance skills help you see the bigger picture of your role and how your decisions are interconnected with other departments in your organization. They also help you understand the potential positive or negative impacts a decision may have on the organization's financial health. So, while the lingo may make your head spin at first, in the end, honing your financial skills and acumen is actually incredibly important and not just for those in the finance department.

How do you demonstrate financial acumen?

When you have financial skills comprised of a basic understanding of finance and accounting you're able to have meaningful conversations and demonstrate your financial acumen by speaking the language of the CFO. In meetings, proposals, and reports you're able to incorporate, discuss, and debate financial considerations before making a decision.

You demonstrate your financial acumen, as you have the financial skills to:

• Understand and interpret financial statements
• Apply financial concepts to better support judgment and business decision making
• Incorporate organizational financial information within your department
• Evaluate alternative investment and budgeting scenarios before making a financial decision
• Communicate in the language of your finance department to work more effectively and efficiently
  
  

How Do You Develop Financial Acumen?

Oftentimes, leaders are promoted into leadership positions without the necessary training to be successful all around. While once a rockstar in a functional role in marketing, sales, operations, or HR, anyone can quickly find themselves feeling underprepared at this level in the beginning.

For that reason, having a basic understanding of finance and what it all means is critical to success as a leader. To start to gain the basic financial skills you will need, find opportunities to meet with other leaders who have the financial acumen to understand the impact of their decisions and how they apply financial concepts to their roles. Schedule a meeting with someone on your finance team to go over your department’s financial reports. These can be a great start.

To deepen your financial understanding, take a program designed for non-financial managers to develop financial skills with peers in similar situations. These types of programs develop your ability to comprehend financial information so you’re more confident in reading and understanding financial reports, asking financial questions, and making financial decisions.

Look for a program with a focus on the skills non-financial leaders needed to be successful in the real world, that gives you opportunities to apply your new financial skills, and fits within your busy schedule.

Conclusion: Financial Acumen is Important and Attainable

It may be overwhelming when setting out to build finance skills when finance is not your functional area. With time and training though, you can increase your confidence and ability to have financial discussions and make sound decisions. Finance is the language of business and to succeed every leader needs to be multilingual, regardless of their functional role.