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Four skill sets of finance and accounting

Financially intelligent managers understand the four distinct skill sets:

  1. The Foundation. They can read an income statement, a balance sheet and a cash flow statement. Can differentiate between profit and cash.
  2. The art of finance. They can identify the artful aspects of finance and know how applying them differently can lead to different conclusions.
  3. Analysis. They use ratios, return on investment (ROI) analysis, etc. to make better decisions.
  4. The big picture. Numbers can’t (and don’t) tell the whole story. Financial results should be understood within the framework of the big picture.

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Understanding how the numbers are used and what are assumptions puts you in control of the decisions.

It consists of three main categories:

The art of accounting is taking a limited set of data to get an accurate description of how well a company is doing.

Accountants use accruals and allocations to attempt an accurate picture of the business for a month.

A balance sheet shows what a business owns at a particular time. A balance sheet always balances. Assets = liabilities + owners’ equity.

Profit is not cash. A healthy business needs both profit and cash.

A good manager is aware of how both cash and profits affect a balance sheet. A balance sheet shows if a company is financially healthy.

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This book teaches the fundamentals of owner compensation, profit targets, labour productivity, cash flow, and data reporting. Clear explanations and helpful illustrations throughout make it a must-read guide for small business owners looking to achieve higher profits.

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