The Importance of Finance for every Manager
Some salespeople often avoid financial matters because they think it is too specialist an area, full of technical rules, regulations and jargon. Some people consider finance to be the job of the finance department, not something within their remit. But individual business functions can no longer work in isolation, because they are so interdependent. You don’t need to be an accountant or a numerical wiz to have an awareness of the main aspects of finance.
A basic understanding should be sufficient for your everyday work and will help you to be more confident and effective. Fortunately, it doesn’t take much to demystify the financial reports. As long as you learn the principles behind financial information and the conventions with which it is produced, the data will become more meaningful to you.
Planning and Budgeting
On a day-to-day basis, planning is really a way of making the best use of resources, such as team skills, knowledge, time and materials. Resources also include how much money there is to spend. As well as organisations asking themselves what
they are going to do and when they are going to do it, they need to plan how the task or project will be done. Every business needs to plan the financial means to be able to tackle operations and initiatives.
All organisations and teams need budgets. In the best organisations these are an expression in financial terms of the real world plans on which they are based. When they budget they are essentially working out what they need to achieve and allocating their financial resources accordingly.
It is the budget that co-ordinates all the various activities in the organisation and ensures alignment towards a common goal. If you have made the move from being a Salesperson to becoming a Sales Manager, then you will also need to gain knowledge and experience in certain aspects of financial planning. You are probably familiar with the standard ‘GOSPA’ sales planning process:
Goal: A broad indication of the achievement or development that you see as your end result.
Objective: A clearly defined and quantified target that you set in order to support your goal.
Strategy: A clearly defined approach to manage your resources in the most efficient manner to achieve your objectives.
Plan: A detailed schedule of events and activities covering your primary and contingency strategies to achieve your objectives.
Action: Your next immediate activity that you will perform as part of your plan. For a Sales Manager, one of the key tasks is linking the sales budget to goals and strategy. For a sales organisation, we will assume that the RDC sales target assurance planning system has been followed.
This will give us a set of robust goals, quantified objectives and strategies that will assure us of meeting or exceeding our sales target. These will inform the budget process so that the authorised budget will support and enable the sales strategies.
A sales budget should be the detailed financial version of the goals, objectives, strategies, plans and actions authorised in the GOSPA process. It should take account of the trade cycle and the product-stage for each product or service (Launch; Growth; Maturity; Decline). It tells you how much of your product or service you are going to sell over a given period of time. The sales budget may include a breakdown of cash and
credit sales forecasts; and an analysis of the associated direct cost of sales, ranging from travel expenses to packaging and distribution costs. For the Sales Manager perhaps more than most others, you could say that “Money makes the world go ’round”.
Managers have to make decisions on what actions will help them achieve their objectives. They are responsible for certain resources and the activities their teams. Resources are inevitably limited, so managers need to choose between using resources for different initiatives.
Many decisions require them to exercise judgment. This responsibility needs to be supported by the right tools and techniques. As salespeople, you can help your customers to make the right decisions by presenting your case using the language of finance in the appropriate places.
Knowing the basics of finance will enable you to help your clients to make decisions around how they manage their financial resources and how your proposition fits in. It will also raise your awareness of the financial implications that may result from seemingly non-financial decisions. All organisations have some degree of financial focus, whether it is using their resources wisely to maximise profit – or to provide best value.
With the complexities of modern organisations, finance affects all areas. In your sales role, financial skills are not an end in themselves but a tool to help you achieve your objectives. Money is a common yardstick used to compare competing investment options and to help align all the various activities in the organisation towards a common goal.
Salespeople need to understand the financial dimension of their own organisation and the products and services they are selling – and they also need to grasp the financial position of their clients and prospective customers. Basic financial knowledge and skills should be viewed not just as an educational extra, but as a means of expanding your management capacity, enabling you to converse more readily with experts in the field – and ultimately being able to sell more effectively.