Performance Improvement

October 02, 2019

4  Financial Skills Most Managers Must Understand

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It is no secret that your company needs informed and educated managers that can pay attention to the impact their departments have on profitability, not just on getting things done. You can count these as essential building blocks that will help your managers help you improve the company’s bottom line.

Departmental Profit and Loss Statements

Managers should understand how to read a basic profit and loss statement for their department or division. They should understand what expenses are being charged to their areas of responsibility, how allocations are being made, and what is and isn’t within their control. If they are responsible for a revenue-generating area of the business, they should also understand, in at least general terms, how revenue is calculated (for example, over the life of a contract vs. when invoiced), and what percentage of revenue their expenses are expected to consume. This helps them truly understand the financial impact of their decisions on the company – and may just get them thinking about ways to help the company perform better!

Budget Preparation

Managers should be looped into the budget process. They should understand what they need to forecast and be given a voice to lobby for investments that could improve their areas of responsibility. Getting them involved in that budgeting process can help them truly “buy-in” to the decisions that are being made, as well as help the company plan for growth.

The Cost of Overtime

There are costs to overtime. For hourly employees, it’s easier to see – there’s an additional labor cost on your income statement and reduced profit as a result. But even for salaried employees, there are hidden costs. Are you burning your employees out with a never ending cycle of last minute requests? Are they not taking vacation time because they don’t feel they can? How is their overtime situation impacting their attitudes and engagement, or your company’s turnover rate? These are critical things to look at – beyond just the financial cost.

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It’s not just about what’s happened in the last month. What financial trends is their department dealing with? Are costs rising, without increases in revenue? Is the gross profit margin narrowing? Managers need to understand what the financial trends for their departments are and what those trends translate into in their day-to-day operations. They also need to be able to see what the projected trends are to allow them to adjust their plans going forward.

Ensuring your managers have both these basic financial skills and access to real-time financial data for their departments is a key factor in helping them help you grow your business.

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