“Beware of little expenses; a small leak will sink a great ship.” - Benjamin Franklin
Business finance guides you to make shrewd and prudent quantitative decisions. It is necessary for you to have knowledge on this to start, run and expand your business.
As you develop skills and strategies for using the funds you have and for accessing additional capital when needed, you'll improve your company's profitability and increase your potential for leveraging new opportunities.
As a leader, understanding finance would help you effectively communicate and systematically analyze financial statements.
Here's 8 Reasons Why Finance is Important for Leaders?
Generate Money and Create Profit - For obvious reasons to make the first step and launch your business, capital investment is required. As people often say, “you need money to make money,” and they are absolutely right, that is why business finance needs to be given the most attention. As you move up, getting materials, hiring professionals, marketing and testing, every single step would need financial management.
Organize Operations - Businesses generate money on a regular basis. This money is then used to pay bills, delegate funds, invest in products/services/engagements and grow.
Manage Cash Flow - For organizations to continue operating as a business, it is important to manage the cash flow. Excessive funds are as bad as having less, as funds could be put into use that would give better returns.
Strategize Funding - Allocating funds intelligently requires proper planning. You need to keep track of the expenses and decide how to spend wisely.
Managing inevitable risks - Entrepreneurs, as well as established business owners, know very well that running a business is all about taking risks. However, not all risks will result in success, failure will come, and challenges are unavoidable. Therefore, having financial management skills will be very beneficial in developing a contingency plan before that time comes.
Exploring new products/services and markets - Most if not all businesses are constantly in pursuit of serving their customers whether with new products or looking into new markets. Effective financial structure in place will enable leaders to easily explore new spaces with fresh solutions.
Outline Long Term Goals - It is important to have significant future goals that the organization aims to accomplish in the future. Financial management helps an organization to grow and scale their business with proper planning.
Sustain Economic Downturn - The growth of the business is a mix of highs and lows. Recessions, depressions, recent pandemic and other internal/external factors may contribute to this. With great leadership skills and sufficient finance knowledge, handling such situations makes it easier for organizations.
Having said all the above, it is clear that having knowledge on finance is as important as managing it. As a leader, you would want to be able to understand financial statements and analyze the data available to you in order to make sound decisions toward the direction of your desired business.