Budgeting and Building Financial Acumen

Hello, I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with me by exploring topics that span leadership, business management, education, and other musings designed to support your journey of personal and professional continuous improvement.

Financial literacy is a woefully underdeveloped skill in both our homes and businesses. I frequently hear business leaders lament about the lack of financial literacy within their teams. In my first book, Balancing Act, I outline the four most important future-facing skills and financial literacy (and it’s more sophisticated cousin, financial acumen) is one of these four critical skills.

So what is to be done to close the financial literacy skills gap?

Last week I mused about turning your company’s budgeting process or “season” into a value-adding exercise for the business. Today, I’d like to introduce another application for budget season. Use your annual budget process as an experiential learning opportunity for managers and key individual contributors in your organization.

The knee jerk response to this recommendation is likely to be: “our budget process is so onerous already—we can’t possibly make the process even more complex!”

My response is that experiential learning can absolutely be woven into the budget process. How?

Learn to Play Organizational Catchball

Most businesses do not play effective “budget catchball” across, down, and through the organization, leaving many to feel left out, uninformed, and disconnected from the budget process. Many in your organization likely feel that the budget is happening to them versus being genuinely involved.

In catchball, goals and supporting budget requests are shared with managers and team members in the next level of the org chart and passed back and forth for feedback and refinement. They are also shared with functional leaders in other departments to ensure organizational consistency—that the right hand knows what the left is doing and vice versa.

It is during the process of catchball where you can inject experiential learning opportunities by training and empowering your financial professionals to become coaches and teachers of basic financial accountancy principles to the rest of the organization.

These don’t need to be elaborately planned lessons, but instead should use the real world application of the budget process to connect the dots for those who are less financially savvy. The goal is not to turn everyone into a financial professional—that’s what you have an accounting department for. The goal is to increase financial awareness and acumen.

For example, during catchball meetings, explain in layperson’s terms what operating income is, how it’s derived, why it’s important, and how it connects to the concept of cash flow.

If you’re listening to me and thinking: “Andy, these concepts are so basic, everyone knows how operating income is derived,” think again. You’d be shocked how many people sit through financial update meetings, listen politely to the CFO talk about the numbers, and then grouse about how they had no idea what the CFO was talking about. When it comes accounting and finance, silence is not a signal that your colleagues understand what you’re saying. Silence is the red flag that indicates that your colleagues are embarrassed to ask questions and don’t want their lack of financial acumen to be discovered.

To ensure these teaching moments are impactful but not overwhelming, executive management and finance leaders should start by picking a few basic terms they want everyone in the company to know. A great initial list would be net revenue and its relationship to bookings/sales; operating income; depreciation; cash flow; and capital investment.

Teach to your initial list and then expand from there during the next cycle. Use off-cycle financial performance sessions to reiterate and reinforce the team’s understanding.

Oh, and there are additional positive knock-on effects to consider. Doing this work will broaden the perspectives of your financial experts and help them build their teaching and coaching skills. Turning your finance team into internal adjunct lecturers will help humanize them to members of other departments and help make finance less scary for their colleagues. In addition, your middle managers will feel more connected to the goal-setting and budgeting process—improving organizational health.

Best of all, you’re using existing resources and avoiding instruction against esoteric and hypothetical situations.

Thanks for listening and have a great rest of your weekend as you recharge for the week ahead.