Finance For Non Financial Managers – Some Important Terms

Posted by GuestPoster | Posted in Articles | Posted on 16-04-2012-05-2008

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Your knowledge and proper application of business tools on hand will establish the extent of the success of the business. Not considering the size, each business requires tools to set things up, manage them and appropriately run them. A number of those tools are entirely fiscal in nature. A reasonable knowledge of finances is essential for each leader no matter what profession he or she has. You close your mind on your fiscal operation at your own risk. You are capable of doing better, of making knowledgeable and premeditated risks or choices whenever you are familiar with the monetary repercussions.  Every choice you will make has a monetary repercussion Рit will either add to your fiscal position or decrease your financial equilibrium. You must never be astonished as to how and why you appear not to have sufficient funds for your requirements when you are not able to keep an eye on profits and spending patterns.

This emphasizes the importance of managers having knowledge of finance basics. It is recommended that executives should be encouraged to undergo some form of training on finance for non financial managers. This can help them much in truly living out the ideals of a results based leadership.

To start, let us take a closer look at some of the common terms used like the income statement or what is also sometimes referred to as the profit and loss statement. Profit is the amount of money that remains after trading or selling merchandise or services. It is the sum of all sales invoices minus all the expenses involved in the sale.

A cash flow statement will clearly show what has happened to the money that you have been generating. And here, cash means cash on hand or hard cash. This includes petty cash and also cleared funds in the bank.

A balance sheet is a document that presents asset levels. Whenever you buy assets for the business, the value should be taken note of as per invoice. Over time, the value of the asset goes down or depreciates. It is also possible for its value to increase or what is referred to as appreciation. It is vital to keep track of the value of assets as it can help to determine when you need to replace the asset. A balance sheet will keep you abreast of the value of the business. It is disastrous to form an opinion about the business based on the bank balance alone as bank balance can mean money that is simply waiting to be paid out. A balance sheet takes in fixed assets like plant property and equipment, vehicles, and current assets (cash in bank and stock levels for example).

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