#405 Finance and Management - an article by Niels Brabandt

Finance and Management

an article by Niels Brabandt

Finance - as soon as this word is mentioned, hardly anyone listens.

Financial knowledge is often poorly developed. This aspect is true not only in a private context but also in a professional context. It is quickly explained that you are not a financial person; there is a separate department for this. Even in management, people quickly say that finance is dealt with elsewhere. The term often used here is non-finance management.

Can managers sustainably represent themselves as non-finance management?

Background

The reason for staying away from finance is that they have not received formal training in this area. However, this comparison is flawed. According to the CMI (Chartered Management Institute, London, UK), 82% of all managers have not received a single second of management training. However, this does not stop those managers from leading other people. They cannot use a lack of formal qualifications as an excuse not to do one topic and immediately do it in another context.

The technical terms, complexity, and scope are often reasons why people do not want to deal with financial topics. I, the author of these lines, closed this gap during my Executive MBA. Even though this was anything but easy, gaining insight and understanding has always been worth the investment.

In the worst cases, however, we find managers who actually believe that refusing to deal with financial issues is acceptable behaviour as a person in management. This behaviour is often supported by an organisational culture that falsely accepts this.

None of the reasons listed here should be used to refuse to deal with financial issues.

More on this in this week's podcast; link below.

Reality

All decisions have financial consequences. Whether approving or rejecting training, hiring or firing employees, even a brief conversation with a person in the organisation has an immediate impact on productivity through motivation or demotivation and, therefore, has a financial impact on the organisation's bottom line. Whether you are a non-profit organisation or a stock exchange-listed investment company, every manager's decision and action has an immediate financial impact. It is, therefore, not even remotely conceivable not to want to deal with these issues.

Moreover, when it comes to planning and handling budgets, every cent you decide on means at least responsibility, often even accountability for those financial resources. Here, providing a line of similar behaviour in the management work across departments is also essential. If a training request is rejected in department A, but the same request is approved in department B, this will not reflect favourably on your management work.

In addition, your performance as a current or prospective manager is always measured by numbers. The aspects that are always discussed with great attention are those of a financial nature. Everyone depends on finances, from bowling clubs to large investment groups - with no exceptions. Added to this are the interests of the stakeholders. The range is wide, whether these are the people who own the company, the public, your employees, investors, external auditors or politicians. However, they all have one thing in common: added value is required, which must be expressed, in whole or at least in part, in financial terms.

Implementation

Building up financial knowledge requires a careful approach. Professional training is indispensable here. Professional support for the application should also be guaranteed at all times. In the beginning, however, a sensible goal must first be set. If you want to provide everyone in the field of engineering with financial knowledge at the CFO level, this is doomed to failure. You are welcome to set an ambitious target and reward voluntary work, but always be aware that for most people, financial knowledge will be a supplement, a complementary element to their main work. Therefore, decide on appropriately ambitious goals.

It is also important to anchor a cultural expectation in the organisation. The refusal to deal with financial issues must stop; a basic knowledge of the matter can be expected, and you will provide the necessary measures. Only if there is cultural support will you see real change, which will also be reflected in employees' actions.

Conclusion: There is no non-finance manager, and there is no such thing as a non-finance manager. Everyone has to deal with financial aspects, especially when you are in a leadership and management position.

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More on this topic in this week's podcast: Apple Podcasts / Spotify

For the podcast transcript, read below.

Is excellent leadership important to you?

Let's have a chat: NB@NB-Networks.com

Contact: Niels Brabandt on LinkedIn

Website: www.NB-Networks.biz

Niels Brabandt is an expert in sustainable leadership with more than 20 years of experience in practice and science.

Niels Brabandt: Professional Training, Speaking, Coaching, Consulting, Mentoring, Project & Interim Management. Event host, MC, moderator.

Podcast Transcript

Niels Brabandt

Let's talk about finance. And boldly some people now think oh go please no anything but not finance. That's exactly the point of what we're going to talk about today. As soon as we talk about finance people usually tune off. They zone out. They say, not not of my business. We have a department for that.

And we see that finance knowledge is not very present in our education system. It's usually not very prevalent, not very present, not the main center of attention. Still, as soon as we enter the real life outside our school and university education, very quickly finances become absolutely imminent and absolutely important for us. So while the financial knowledge in private is not very, let's say, not great in general in society, it is much better in real world enterprise as well. Because as soon as you say, well here's a finance aspect, people say, wait I am not a finance person. I am not a finance leader. I'm not a finance manager.

I'm not a finance person. I'm not a finance. So whatever you hear, people very quickly turn away and say that's not for me. The problem with that is we need to question if this statement is acceptable and sustainable for an organization. Because when people say I'm not a finance manager, but yet you're you're still leading a department, is that even possible? So we need to talk about, is this statement acceptable and sustainable for an organization when people say, I am not a finance x y z? So first, let's get to the background.

Often people turn away turn away from finance because they say they didn't have any formal qualification on finance. And there's a reason why that kind of argument, that that kind of reasoning doesn't age very well. I give you a very simple example. In London we have the CMI, the Chartered Management Institute and that found out in a global study eighty two percent of all leaders had zero minutes, zero seconds of leadership training, coaching, mentoring, name it as you like. So when you say, I don't touch finance because I didn't get formal education on finance, when you didn't have any formal education on leadership, you can't lead people. And that's exactly what no one does because people think, oh, I don't know anything about finance, so I'm not touching it. And as soon as you get promoted and say, oh, leadership, yeah, I just need people.

Never got any formal education on that. Don't know what I'm doing, but I'm still trying it. And you would never allow anything like that with finance. So you cannot say, I'm not touching finance due to a lack of formal education. At the same time, I'm leading people without having exactly the same non education on leadership. So this whole I don't have formal education is not a valid argument, not a valid reasoning in this in this context. The reality is different.

Often people feel intimidated or they feel discomfort due to the terms they hear. When you, for the very first time here, weighed average cost of capital, and I can tell you when I did my MBA in London in The United Kingdom and finance was the first module, I didn't sit there and say, yay, finally someone tells me what weighted average cost of capital is. However, after the MBA, I know that I am now a way better leader and manager with the financial knowledge that I actually have. But the terms, the complexity, the amount of terms, of course, can be a bit off putting. However, in addition to that, often there is a certain role perception that people simply say, it's none of my business. They say, we have a finance department, and anything with finance is their business, not mine.

So they just brush it off. And that, unfortunately, often comes due to a due to an organizational culture. An organizational culture where people say, it's none of my business as soon as I hear the word finance, and then people suddenly accept that. And again, we now have to look into are there any parallels, anything where we can allude to where that kind of behavior would not be accepted.

And you very quickly find that. Remember when back in the days people and I just give you one role now when when when someone said, oh, I don't have to do sales work. I work in HR. And then modern organization at a certain point said, as soon as you have someone on the phone or in your contact list or you contact anyone that could become a probably a client, a mandate, piece of business or someone who's going to work for us, you are in some sort of sales process so you need to change your mind on that. You need a more modern thinking, a different mindset on the matter. And modern organization change their mindset on these matters. However, in finance people could still say: Nope.

None of my business. I work in engineering. I don't have to do finance.

And that is often commonly accepted. By the way, not with all organizations. Just last week, I was with an organization. I had a whole class of people. All of them had a hundred percent background in technology. From people who had the German Meisterbrief, from people who had vocational training, up to people who had bachelor's and master's degree in technical jobs and engineering. All of them saying, I have absolutely no idea about the economical background and finance.

And that might sound strange to you, especially when you're self employed and you're listening to this. You you just think that what people just get a general gist of it. People know what what's the difference between revenue, loss, income statement, cash flow statement, all of that, profit and loss statement. No. They don't. I had people who couldn't explain the difference between an LLC and an incorporated company or, let's say, for The UK, a limited and a PLC. Absolutely no idea. And they had no idea what's the difference, why some people are a sole trader or a limited company.

They had no idea why this exists. And let's face it, this is not surprising. Because if anyone would ask people like us, and I include myself here, about engineering stuff, where engineers simply say, well, when you drive cars, you probably look at how how engines work, don't you? Because you're interested. And most of us don't. I can't tell you why an engine is working and why a car is driving forward with it. So that is exactly the same.

We have to see that organizational cultures often focus on specialists which is good in the first place but then often allow people to brush things off which are important for their jobs. So what do we have to do now in reality? So first, we have to accept every single decision has a financial impact.

Every single one. Every decision you make has a financial side to it. And when you now say, well, I'm I'm I'm just some sort of low level manager. I talk to people and try to try to make them take customer phone calls and complaints and to solve them as as quickly as as possible. I give you a very simple example. When you have a talk, a chat with an employee, and this chat goes better or worse, after this chat, the person is more motivated or less motivated, more motivated to help clients or less motivated, more motivated to work an hour extra or even ten minutes extra, or not motivated, hangs up in the middle of a chat. That immediately has a financial aspect to it because motivation goes into productivity and productivity immediately affects the bottom line, your balance sheet of your organization.

And by the way, it is not relevant if you are an organization for profit or non profit. It is not relevant if you are Greenpeace or BlackRock. Every single one of your organizations, every single organization on this planet for profit or not for profit or non profit every single one of them need money. As soon as you run out of money the doors are closed and that was it. It is the it is the common denominator we all have in common. So that means you have to accept every decision has a financial aspect and budget ownership also means financial responsibility. Maybe you don't have financial accountability you might claim.

However, let's face it. Let's say you're a department leader and you plan your training budget and then you see that the training budget wasn't really a fit so you have to get another budget. Do you think that at the end of the year with accountability, they go to the finance department and ask them why you assume the wrong amount of training? No. They're going to go to you. So you do not only have financial responsibility, you also have financial accountability if you like it or not. By the way, even on very low level.

Even on very low level. In addition to that, you need to have strategic alignment. You need to have some sort of similar behavior across different departments. When you, for example, have two production facilities and they are next door to each other, both belong to your company. And in one facility, someone says, I need technical training, and that person gets the training. And next door, a quite similar person or totally similar person asked the same question and doesn't get the training. Very quickly, it will make the round which manager is the one that invest in their people and which manager is the one that just pushes the profit in the short run, and then they run out of skills in the future, but they don't care.

That manager went on and went to a different organization. But they got a nice bonus of it because they didn't spend money in the first place. Very quickly, people as managers and leaders will have a reputation. You need strategic alignment, and, again, that has a financial aspect to it. In addition to all of that, accountability and performance of you will be measured by KPIs. At the end, people will say, when you run an IT department, how did this help the business? When you run production or engineering, when you run the bookkeeping, when you run any when you are a team of secretaries, people will say, hey.

How did you support the business? Bring the numbers to the table. So So when, for example, you have forty days of absenteeism per year, which has a massive financial impact, and you can reduce that to thirty two successfully three years in a row, then people will say that you did well including financially well. You saved the business money. And most likely, by the way, financial aspect here, you will ask for a salary raise in return because you managed and let so well. So you see on a very low level already of every single tiny bit happening on the organization, you need to have financial knowledge. And by the way, overarching on top of all of that, stakeholder expectations always have a financial aspect.

Stakeholders might be people who are physically owning the company, people who founded the company, people who hold shares in it, but also might be politicians, might be the general public depending on what kind of organizations you are. So stakeholder expectations always have an aspect of financial resources should be dealt with well. And just look into politics. As soon as a penny is wasted, people go wild and say how can my taxpayers money can be handled that badly? And that's exactly what I'm talking about. Stakeholder expectations exist anywhere. So when you say you're a non finance person that is not a sustainable and acceptable statement.

So how can we change that? So first, you need professional training. And with a professional training, you need some sort of either coaching or mentoring to apply that knowledge to the level and the extent you need to. By the way, be realistic, and it's important point here as well. Be realistic about the goal you're setting. You can be ambitious, of course, and you should be. However, when you now listen to this podcast and say, hey.

I have this great idea. Every single manager now in our company will be a chartered accountant. They have to get the qualification. I can tell you they will leave the organization because that is too much knowledge. It's more knowledge than they need to have. People don't want to work as chartered accountants when they're in engineering. Otherwise, they would be, surprise, chartered accountants.

So you have to be realistic, ambitious about the goal you set. When people now say, hey. I want to have the management accounting degree, or I want to get my MBA in with a share in finance or even fully in finance, most likely with a share in finance. Or people say, hey. I want to get the basic accounting qualification to understand what's going on here. Encourage them, support it, and help them to get these qualifications because the more people understand, the better they work. Always, when people volunteer, you need to be a company awarding them something for it.

As soon as people volunteer and they see, oh, no one's appreciating it, then they will stop volunteering. And most likely, they will volunteer to work somewhere else. And then you have a massive financial impact with that. In addition to all of that, you need to have a cultural expectation that finance is a part of every single person's job. I give you a very simple aspect of what I, for example, did in my business. In my in my industry, it is pretty common that what people get their commission on when they work in sales, they get commission on the revenue. And I never did that.

Because what happened is as soon as people are close to getting the deal, they are starting to throw things at clients and say, oh, you get free books and you get a free this and a free that because as soon as they get the revenue, they get their commission on the revenue, but they lower the profit massively just by giving all giving away all these free gifts. However, when you then suddenly explain them how actually from the revenue to the profit point of view does the whole thing develop, and we did that. And then you tell them your commission will be based on the profit that you make. In return you get a higher commission because you need a bit more qualification here, then people act better and more sustainable, not only in favor of the client, but also in favor of the organization, meeting exactly the best point with the best solution for both parties involved here. Wrapping all of this together when you have this cultural expectation now in place we have to say there is no non finance leader. There is no non finance manager.

It simply doesn't exist. Saying finance is not my thing is a non sustainable and also, unfortunately, I have to say non acceptable statement for any kind of leader. You do not have the CFO level expert but you need to know what's going on When you are on a very junior position where you have nothing to say when it comes to leadership, regarding leadership, you have no team, you have no one to lead, and you don't have any kind of budget. When you then say, fine. This is not my thing. Fair enough. You can say that.

It's probably not a push for your career. Probably not the best attitude. But when you say, I'm happy where I am and I wanna keep that job exactly as it is. Then, of course, you can do exactly that. For anyone else who has any kind of attitude towards a career, towards a promotion as soon as you have the tiniest bit of leadership job, finance is relevant to you. Finance is relevant for absolutely anyone, anytime, anywhere. Especially when you are leading people, managing people or hopefully doing both.

And I am wishing you all the best implementing what I just told you. And when you now say oh that sounds like a lot of work and I have to admit it definitely is, feel free to contact me nbnb networks dot com is my email address. Feel free to email me there. I will put my email address in the show notes of this podcast. I will put my LinkedIn there as well. Feel free to connect with me on there. And I also will put my website on there nb-networks.biz.

You also find the transcript of the whole podcast in sorry, on this website. Second aspect here, if you want to have live sessions, yes.

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