What exactly is financial intelligence to Setpoint?

What exactly is financial intelligence to Setpoint?

We’ve worked with thousands of employees, managers, and leaders in companies all over the world, teaching them about the financial side of business. Our philosophy is that everyone in a company does better when they understand how financial success is measured and how they have an impact on the company’s performance.

Our term for that understanding is financial intelligence. Grater financial intelligence helps people feel more committed and involved. They understand better what they are a part of, what the organization is trying to achieve, and how they affect results. Trust increases, turnover decreases, and financial results improve.

But what exactly do we mean by financial intelligence? It isn’t some innate ability that you either have or you don’t. For most businesspeople, financial intelligence is a set of skills that can be learned. People who work in finance happen to acquire these skills early on. Most senior executives (not all) either come out of finance or pick up the skills during their rise to the top, simply because it’s tough to run a business without them. Managers who don’t work in finance, however, too often have been out of luck. They never pick up the skills, and so in some ways they’ve been relegated to the sidelines.

Fundamentally, financial intelligence boils down to four distinct skill sets:

  • Understanding the foundation. Managers who are financially intelligent understand the basics of financial measurement. They can read an income statement, a balance sheet, and a cash flow statement. They know the difference between profit and cash. And most of all, these numbers don’t scare or mystify them.
  • Understanding the art. Finance and accounting are an art as well as a science. To get them to work together, they must rely on rules, estimates, and assumptions. Financially intelligent managers are able to identify where the artful aspects of finance have been applied to the numbers, and they know how applying them differently might lead to different conclusions. They are prepared to question and challenge the numbers when appropriate.
  • Understanding analysis. Once you have the foundation and appreciation of the art of finance, you can use the information to analyze the numbers in greater depth. Financially intelligent mangers don’t shrink from ratios, return on investment (ROI) analysis, and the like. They use these analyses to inform their decisions, and they make better decisions for doing so.
  • Understanding the big picture. A business’s financial results must always be understood in context- that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations, changing customer needs and expectations, and new technologies all affect how you should interpret numbers and make decisions.

Savvy business people use these four specific skill sets as a foundation to their financial intelligence. Since the 2008 financial crisis, more people than ever are willing to talk about balance sheets, mark-to-market accounting, and liquidity ratios. It affected discussions on how a company was doing and what financial issues managers and employees as individuals needed to consider.

When managers and executives have the skills they need to participate in those conversations, and take that financial information and use it to make better decisions, it enables them to achieve greater success within their positions, and in turn greater success for a company.

Source: Financial Intelligence by Karen Berman, Joe Knight and John Case. Joe Knight, and his partners, Joe Cornwell and Joe Van Den Berge from Setpoint together have built two companies with 25-year histories of successfully implementing these principles in their thriving businesses. JR Setpoint designs and implements custom rides and attractions for the top amusement and theme parks in the world, and Setpoint Systems delivers custom automation and robotics that help manufacturers large and small improve the way they make and distribute goods. Both companies have joined the JR Automation family of engineering providers of intelligent automated manufacturing and distribution technology solutions.

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