As you move up the career ladder, it is not enough simply to carry out work for your client; it is crucial that you do so in a way that allows your organisation to make a profit. Indeed, as you get more senior, you are more likely to be running a team, department, office or cost centre. To do this well you need to understand business finance, and add these skills to your technical knowledge and skillset.
Where to start? First, familiarise yourself with the five key pieces of financial information:
- Profit and loss accounts: A profit and loss account (P&L) is a statement of trading activities for a given period. It shows the income earned by the business, the costs which have been incurred in running the business, and calculates the resulting profit or loss.
- Balance sheets: A balance sheet is a statement of the total assets and liabilities at a particular date.
- Cash flow: Cash flow is the movement of cash in and out of a business as a result of receipts (from customers) and payments (to creditors, salaries and loan repayments etc.)
- Budgets: A budget is a management plan which shows what money is likely to be available to an organisation and how it will spend it over a period of time to meet its objectives.
- Management reports and ratios: These include gearing and liquidity, operating efficiency, and profitability.
The better you understand these documents, the more able you will be to use the information in them to help you spot untapped opportunities and red flags.
There are many businesses which fail to manage their finances properly, including a significant number of professional practices, because they consistently give priority to technical work and not what they consider to be ‘administrative overheads’. Other firms understand the importance of financial reporting, but do not use the information they contain effectively to make better management decisions.
For aspiring professionals it is important to have a confident grasp of finance information. Embrace business finance and make sure that you embed this information in your management decisions. In doing so you will be making a valuable contribution both to your business and your career.
Stan Hornagold is Director at Stay Out Front and RICS Executive Education faculty member.
Find out more about RICS Executive Education’s Strategic Finance Masterclass and Business Management Masterclass and how we are supporting professionals in the built environment to position themselves as leaders in their industries on the RICS Executive Education website.