Finance Basics for Non-Finance People

Finance for Business

Finance is the study of money management, which uses frameworks, models, and reporting structures to help firms comprehend financial management. By adhering to a set of principles and regulations, it can also affect how projects are progressing and ensure more financial success. Finance is considered the foundation of the basic activities of any business; therefore, it is important for every stakeholder to have at least a basic understanding of it.

Why do non-finance people need to have a basic understanding of Finance?

The ability to better grasp firm finances should be granted to teams and managers who are not directly involved in financial management. This is essential because it enables them to make informed decisions about project planning and fully understand the motivations behind managerial actions. Additionally, being financially literate enables people to think of creative solutions to problems.

Basic finance knowledge is also important in taking corrective actions and being proactive. Non-finance teams can be unaware as to how their company is doing and how they are generating income. Performance-related discussions frequently touch on the overall impact of both individual and team efforts on the business. It is particularly important that non-finance people should have at the very least, a rudimentary understanding of financial terms and how they relate to their work.

                       

Basic finance knowledge can benefit the non-finance people/team in the following ways:

• It can help them participate in the development of financial planning and the management of the finances for their department/team
• Understand the importance of working capital and cashflow for the business
• Compile monthly budgets
• Make informed investment decisions
• Examine basic financial ratios to ascertain a project’s viability
• Guide them to make informed decisions regarding the pricing of goods or services that the business offers.
• It can also help them communicate more effectively with finance professionals such as lenders, investors, banks, etc.

Key Concepts of Finance for Non-finance people needed

Some of the key concepts that non-finance people should have a basic idea of, include the following:

• Financial Statements: These are written reports or records of the financial activities of a company. They provide a snapshot of a company’s general well-being and performance to investors and other stakeholders over a period.
• Balance Sheet: This is a component of financial statements that helps businesses and other stakeholders get an insight into the financial position and strength of the business at a certain point in time.
• Assets: These are what a company owns. They are anything or any resource owned by an entity that has value or is expected to have value. Assets can either be non-current (last for more than one year) or current (within a year).
• Liabilities: These are what a company owes. They are current obligations arising from past events, the settlements of which are expected to be payable to another person or entity. Liabilities can also be either current (due for payments within a year) or non-current (due for payments in more than one year).
• Income Statement: This is a financial statement that shows a business’s financial performance over time.
• Cashflow Statement: This is a statement that shows the amount of cash inflows and outflows of the business over a period

Some basic finance knowledge for non-finance people

Some of the basic finance knowledge that non-finance people should know include:

• Interpreting financial statements (Income statement, balance sheet, and cashflow statement)
• Cash budgeting and working capital management
• Assessing project returns
• Making pricing decisions