Competent business managers require basic financial skills to manage their operations efficiently. They must minimize corporate liabilities and adhere to local, state and federal regulations. Managers of small businesses need to maintain a level of cash reserves and financial flexibility. The U.S. Small Business Administration provides online courses to help managers develop skills in finance and accounting principles. Using these resources, they learn how to identify sources of capital most frequently used by businesses, find out how to borrow money, establish collateral, negotiate rates and repay loans.
Business managers need to know how to prepare financial reports that provide information about a company’s performance. External investors, creditors and government authorities review these reports according to Generally Accepted Accounting Principles guidelines. Managerial accounting practices do not usually follow GAAP because company executives typically use them to make internal decisions. Competent business managers need to be able read a profit and loss statement and balance sheet to identify a company’s assets — the obligations to pay debts known as liabilities plus the owner’s equity. Being able to read financial statements that display company income and expenditures enables a business manager to make sound decisions.
Developing strong analytical skills enables a business manager to make business decisions that help the company achieve its strategic objectives. Competent business managers need to interpret financial ratios — performance metrics — to make these decisions. They should have a working knowledge of how to calculate “net profit margin” — net income divided by total revenue — and “debt-to-equity ratio” — total debt divided by equity capital.
Competent business managers have a responsibility to perform financial tasks with integrity. For example, expense reports must be in alignment with the company’s mission, values and goals. Shareholders must not be disappointed with falsifications that jeopardize their investment. Successful business managers can cite financial statements with confidence, explain the use of reports, describe how costs flow to the business and avoid the impact of impropriety on the company.
Competent business managers work with accountants to supply the necessary documents required for audits. Small business owners may use the audits required of all corporations reporting to the Securities Exchange Commission to enhance the credibility of their financial statements. For example, banks may require loan applicants to submit audited financial statements before they will issue a loan. Competent business managers diagnose problems and work toward solutions to ensure compliance.