Running a business relies on a huge range of skills, including everything from strategy and marketing to customer service. But as anyone who has ever managed a business will know, it’s also vital to have a solid understanding of basic financial principles. It’s only through this kind of knowledge that major financial decisions, such as salary setting and cost-cutting exercises, can be taken effectively. Here are some of the main reasons why a rigorous financial education is a necessary step towards good business leadership.
When a new person joins your team, you as the leader will be required to set a salary for them – and good financial skills are a must-have here. Analysing the rest of the job market for that particular role is part of this, but you’ll also need to be able to calculate the overall cost of hiring someone once employer pension contributions, National Insurance, employee resources (such as tools or equipment) and more are all taken into account. Without good financial skills, you might not be able to appropriately price the cost of a new employee in to your business’ budget.
While the exact requirements will depend on what legal form your business takes, as a business leader you’ll have to regularly collate and submit financial information. If your business is a limited company in the UK, for example, you’ll need to submit documents covering everything from how much your firm is owed to an overview of company performance. Even if you’re a sole trader, you’ll still be asked questions about your income, your allowable losses and more on your annual tax return, and depending on your income level, you may also need to get to grips with saving up for payments on account – all of which require the sort of financial understanding that an LSBF course can offer.
When business is booming, there’s often less of a pressing need to take financial decisions. After all, during a profitable period for a business, money is coming in left, right and centre – and provided the figures involved aren’t huge, there’s often no need to think twice about spending a bit more on things such as staff costs and expense budgets. In most cases, it’s when the income starts to dry up that fully informed financial decisions need to be made.
As a leader, it will be your job to retrench and cut your firm’s spending in proportion to the new level of income, if this happens. If you don’t have financial training under your belt, there’ll be no way you can perform this kind of strategic accountancy. A solid understanding of profit and loss and accompanying concepts such as balance sheets, for example, will give you what you need to make sustainable and wise decisions.
Once you run a business, you’ll quickly find yourself doing much more than just servicing clients and hiring staff. You’ll also be taking regular financial decisions on a day-to-day basis, and there’s a lot of responsibility involved in doing that. From working out how your new staff member will affect the budget to submitting a tax return, strong financial skills are vital.