Middle management

A Middle Managers Guide to Finance

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What is Financial Management?

Today’s post for A Middle Managers Guide to Finance provides middle managers a quick outline of financial management.  And, hopefully, in a manner that is relatively painless.  Feel free to comment at the end of the post!

I’m going to guess that as a middle manager, you probably await finance reports that signal to you and your manager how your part of the business is performing.  These reports may come from the accounting department and report current performance data compared to some sort of budget/plan and last year.  I’m also going to guess you probably dread the annual planning/budget exercise.  And when your CFO talks about the company’s performance, “What did the CFO just say?” is the question of the day. 

Just what is Financial Management and how much do I need to know about financial management to do my job?  Isn’t all that finance stuff the CFO’s problem?

Financial Management starts with Financial Managers and their high level Goals/Responsibilities.  In a general abbreviated format, financial managers have the following responsibilities:

  • Financial Planning and Analysis – These responsibilities refer to activities related to forecasting future business results, ensuring company goals can be achieved and putting pencil to paper to measure whether or not forecasted goals were actually achieved.  Financial management professionals also kick the tires on new endeavors; again ensuring the returns fit company expectations.  A great deal of accounting data supports these activities.
     
  • Asset Management – Here, Asset Productivity could be the description as well.  Financial management looks at the returns being generated on the investment in assets, e.g. cash, inventory, people, technology, equipment and buildings.
     
  • Overall Financial Structure – The financial structure refers to managing the amount of cash and debt the company uses to operate.  This activity also determines how new assets, e.g. buildings, will essentially be paid for or financed. And whether or not new equity (shareholders money) should be raised in lieu of borrowing additional cash. 

Your company’s financial reports are rooted in accounting data and reports subjected to Generally Accepted Accounting Principles (GAAP). These principles are generally accepted set of accounting principles. Standards and procedures issued by the Financial Accounting Standards Board (FASB). GAAP and FASB exist to bring reporting standards of financial data in such a way that enables comparisons to be made between company’s reports and to provide clarity and consistency. 

To be a successful middle manager, you must have a grasp of fundamental financial management concepts in order to “walk the talk” about financial performance levers under your control. Understanding the fundamentals of finance help you ask the right questions if performance is either too good, on target or slipping. Understanding the fundamentals also helps you make business adjustments where needed. 

Key pieces of this financial foundation include performance analysis and asset management.  Yes, mathematics is involved! Financial concepts involving the time value of money, ratio analysis, cost of capital, return on investment, profitability, valuation, price elasticity, etc. will be covered in future posts. 

So, what does this mean to middle managers? Breathe easy. You won’t be asked to develop spreadsheets to augment your decision-making tool kit or to develop the metrics for valuing the purchase of new equipment or additional inventory.  Financial professionals will perform these activities.  

But you need to possess a high-level understanding of financial management concepts, especially when preparing budgets or requesting additional resources.  Financial managers want to know resources are being applied efficiently in your business and are producing expected returns, all based on how they measure productivity and performance. And guess what, you want to know, too! My goal will be to provide you this understanding foundation as we move through other financial management posts.

If you can’t demonstrate an understanding of basic financial management concepts, you will be left in the dust. Another middle manager who can engage the finance department will make off with your resources while someone else reorganizes your operations. Enough said.

Reflect back on the post related to cash for a minute.  If you were able to follow through with the Career Momentum suggestion at the end, you better understand the connection between the people and activities under your supervision and their connection to cash sources and uses.  Plus, you now are on a first name basis with your new best friend, the financial manager attached to your business-operating unit. (Seriously, having the finance manager on your side is invaluable!)

A final word about reporting. Typically, there are internal financial reports, external financial reports and management performance reports.  Each serves a different audience and therefore contains different types of financial data. Most meaningful to you will be understanding the genesis and underlying financial concepts related to management performance reports used to evaluate your business’s performance.  

Career Momentum Builder 

Ask your supervisor to share with you their point of view regarding the keys to their management performance reports, usually produced by the accounting department monthly or quarterly.  What’s most important? How does your operating unit fit into these reports? Are there performance targets to be attained this period? How can you be more helpful in attaining these targets? Is there a role you can play during the next planning cycle?  

12 Things for Middle Managers to Think About in Relation to the Pandemic

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By Oliver W. Cummings

1 May 2020

Fundamentally, the act of being a leader involves followers and knowing what to do is not sufficient to inspire followers’ trust; knowing how to go about what you do is what makes for real leadership. And, the “how” is very much tied up in facilitative relationship building. This is true in the best of times, but if everything is going along pretty much as usual, our attention to the relationship building can become routine, or even a little lax.

But, when a crisis hits, those relationships are brought to the forefront and when the crisis is a big, for-real deal, – rather than a normal crisis, like the disruptive entrance of a threatening new business model, as Amazon has been to many retail business establishments – I mean a for-real big deal like the Covid19 producing pandemic, then the metal of every unit leader is tested.

For those faced with job losses, including their own, it is a big deal – how to handle the situation that you may never have faced before, like going from a bread-winner to standing in a bread line for hours just to feed your family.

For those faced with continuing to do business as usual, the challenges are real and a big deal – a firefighter is still expected to respond to a fire alarm, rescue people, infected or not, if need be, and put out the fire.

And, for those whose unit demands continue but under very different constraints and challenges can be horrendous. Think about the doctors and nurses taking care of Covid19 patients at their own personal risk, unable to go home to their own family after work for fear of infecting them, unable to provide for a family visit – or even to show a reassuring smile behind their PPE – to a patient in distress, and dealing with a disease for which there is no known cure.

In each of these three circumstances the beyond-normal manager competencies of facilitative behaviors become hyper-important:

  1. Believe in what can be done by a committed group of people and that, even when they are not able to achieve what they set out to do, they are positively motivated.
  2. Understand and feel, empathically, what others are going through so that you do not tread on their feelings unknowingly.
  3. Genuinely care about others; and, when what you have to do is detrimental to them in some way, be sure that you do it respectfully and compassionately.
  4. Build on the trust you’ve managed to earn and keep true to your trustworthiness.
  5. Above all, maintain your integrity through the whole process.

Trust and integrity go hand-in-hand. Interpersonal trust is a two-way process and is tied to common experiences. In a time of crisis people look to their respected managers for a steady hand.

Done with honesty and commitment to doing what is right based on a solid understanding of right from wrong (aka, done with integrity), these things will help bolster your trust relationships with your employees:

  1. Be predictable. A key to cultivating trust is consistency of behavior.
  2. Handle the pressure. Be where you need to be, doing what is most important for you to do – and be sure your folks know where you are and why – in this way stay “visible.”
  3. Tell the truth and keep your promises. Getting caught in a lie or breaking a promise will do immediate and usually long-lasting damage to your trustworthiness.
  4. Show concern for employee’s and other units’ rights and issues. Such concern provides a sense of security that you will not take unfair advantage.
  5. Be accurate and forthright in communications. To the extent you ethically can, you should provide adequate explanations of decisions and actions.
  6. Share some control, but make decisions decisively, timely, and with the information available. Smart delegation and participation at a decision-making level with employees is effective.
  7. Demonstrate your competence and resolve to deal with the complexities of the circumstance. For others to trust you they must first believe you are competent (to do the job, to make the decision, to exercise sound judgment), and that you intend to win.

A Middle Manager’s Guide to Finance – Cash

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Source: VisualHunt

The phrase Cash is King is frequently used when educators begin imparting business management wisdom upon unsuspecting students or when owners of family businesses prepare others to assume owner responsibilities. Understanding how cash flows through your company will definitely enhance your strategic thinking skills.

Cash is the vital fuel used to run the engines of business. Simply put, cash enables business.  Enough said.

The management of cash is crucial to the successful business.  Cash flows into the business from a number of sources, e.g. cash sales, accounts receivable collections, and loans.  Cash is used a number of ways in business and therefore flows out of the business, e.g. buying materials, clearing accounts payable, paying back loans, and paying employees or shareholders. Plus, strong predictable cash flow helps businesses negotiate favorable financing terms.

Cash is also an asset and should be subject to standards of productivity.  A company needs enough cash on hand to meet the demand and should be collecting cash quickly and efficiently.  Therefore, cash is subject to budgets and forecasts.  To facilitate the reporting of cash in (sources) and out (uses) Cash Flow Statements are prepared.  Middle managers are rarely involved in the aforementioned activities/reports.  Managers in accounting, finance and treasury keep their fingers on the pulse of cash inflows and outflows as well as cash on hand for the company CFO. 

However, middle managers can and do influence cash flows.

Think about it.  Most everything around your department has something to do with cash.

The building, office furniture and equipment, electricity used to provide light and run the equipment, supplies, etc. were put in place by some sort of cash transaction.  The same can be seen in a warehouse or a doctor’s office. 

Now, let’s think about the nature of your business.  Does your company sell products? Does your company make the products or buy the products to resell.  Both models require maintaining an inventory of product.  Think about inventory as cash waiting to happen. 

Take a moment to think about your role in the company’s need for cash or exchanging goods or services for cash.  Are there activities that could slow down or reduce your company’s need for cash without compromising employees, customers or shareholders?  How could you or your department’s activities accelerate the collection of cash?

Add understanding of how cash flows through your company as an additional decision-making lens for managing your department’s activities.

A final note; cash is not the same as profit.  Cash is the fuel for business. Without it companies will fail.  However, cash does not make the multiple moving parts of business work effectively or efficiently.

A car makes a great analogy.  Keep your eye on the fuel level and make sure your not going to run out before the next gas station. But gas alone does not keep the car moving forward. You need to understand how the car works.  Business is the same. 

My advice, keep an eye on how your activities impact the level of cash in the fuel tank and know what you are looking at when you raise the hood! 

Career Momentum Builder – For the next few days, view your activities and your department’s activities through the cash flow lens.  Make some notes identifying whether or not cash is being used or generated. Have a discussion with your finance manager about your department’s impact on cash and listen to their point of view regarding the possibility for cash flow improvements.

A Middle Manager’s Guide to Finance – 1

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VisualHunt

Ken Vermilion

3/8/2020

Understanding the world of corporate finance in a big company can be daunting.  And if you’re not in the management chain that ends with the Chief Finance Officer (CFO), you might wonder if middle managers really need to bother themselves with the language, strategic thinking skills and, perhaps the most daunting, the math of corporate finance? 

The answer may be “no” if you’re comfortable in your middle management position and don’t aspire to move up the ranks or know that your job will never be eliminated. (Note: I don’t believe the last situation exists anywhere in corporations today.  Do you?) 

Wouldn’t it be nice to understand the fundamentals of finance enough to be able decode the CFO’s presentation to shareholders at the annual meeting or the written analysis reported in the company’s annual report, to understand what your finance manager’s thinking about regarding your piece of the business, or to know how your work fits into the overall financial success of the company?  I’m going to go out on a limb and say “yes”, you would like to understand the fundamentals, but in terms applicable to your position in the company and in terms you can easily digest.

The goal of this blogging series is to present the fundamentals of finance in a format suitable for non-financial managers interested in learning more about financial management in order to help them advance in their careers.  (Note: Heck, your newfound knowledge and language might make you a candidate to participate in future strategic action planning exercises!)  

You will pick up the fundamental language of finance and be better positioned to understand what makes your company tick, financially.  Most importantly, you will be positioned to know how your activities contribute to the financial goals of the company and be able to ask important/thoughtful questions about your department’s financial performance.  Your understanding of fundamental finance will assist you in developing the skills needed to “lead from the middle.”

For a start, you will learn about the importance of cash (some things obvious and some things not so obvious), the fundamental financial statements and how they integrate, an analytical framework for comparing elements of the financial statements to determine how the business is doing, basic financial analysis that can help in complex problem identification/solving, and how I like to read through annual reports. You will also be able to ask me questions to help further clarify concepts.  Together, we can expect to have some fun with finance.  And I promise never to use a lemonade stand or fruit vendor to make a point, not that there is anything wrong with doing so. 

So, stay tuned to this space to prepare you for the future. Use the reply button to actively participate in the journey this blog can provide you!     

Career Momentum Builder – I will close each blog post with a Career Momentum Builder.  The builder may simply be something to think about in the context of your job accountabilities.  Or a very short, emphasis on very, assignment that relates to the current blog or the blog post that will appear next. The MindPrep Resource Center was formed with one goal in mind: to help emerging leaders progress and succeed in their careers.  This blog is driven by that commitment.

How Crime Novels Can Teach You The #1 Business Skill You Need In 2020

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Did you know that according to the World Economic Forum, the #1 business skill required to succeed in the new decade is the ability to solve complex problems?

If you want to become a better and more powerful leader in your company, mastering how to solve complex business problems is not optional – it’s imperative to your success.

Read on to discover how you can sharpen your problem-solving skills…

Solving Complex Business Problems IS A Complex Problem

Like you, I always want to keep my skills up to date, and learning more about this “complex problem solving” stuff is one of those “must have” skills so vital to your business success. However, after reading tons of books and articles, I have concluded that solving complex problems is itself a complex problem.

What to do? How to make some sense of all this stuff?

After some initial research (which quickly led to a headache), I decided to take a “mental vacation” from the task… and retreat into the world of recreational reading (aka, fiction).

And then it struck me!

My favorite genre – detective novels – is a great problem-solving model that provides insightful and valuable answers.

After all, isn’t Nero Wolfe a problem solver? How about Hercule Poirot? Who would want to match wits with Inspector Alleyn? And get yourself out of the way of V. I. Warshawski… she has a caper to solve!

No computers. No Big Data. No hotshot consultants. Just brains.

OK, so how might you wrap your mental arms around this “detective stuff?”

A good starting point for solving your complex business problems is to think like a mystery writer. And even if you don’t have a crime novel obsession like me, you can apply the same skills and methods from fictional savvy detectives to solve your business challenges.

How The 9 Elements In Detective Novels Can Help You Solve Your Complex Business Problems

Every great mystery novel has 9 elements: the crime, the scene of the crime, the motive, the victim, the criminal, the detective, a variety of suspects, an element of time, and the solution.

Let’s delve into how these 9 elements might be applied to overcome complex business problems:

  • The Crime = “The Problem”
    What specifically is hindering your business? What key performance indicators are “out of whack?” Profitability? Same-store sales? Personnel turnover? Quality? Sometimes the hardest part about solving a problem is clearly defining it.
  • The Scene Of The Crime = “The Context”
    What’s changing in your industry? How is the competitive landscape changing? Is the problem unique to your environment, or prevalent across your entire industry? Perhaps it’s time to consider a business CSI team.
  • The Motive = “The Root Cause(s)”
    Why is “the crime” being committed? Who is changing the rules of the game you’ve played for so many years? Is Amazon out to hurt you specifically, or is their pursuit of new profit centers affecting all businesses in your industry? Symptoms are usually obvious… your job is to figure out why they exist and how you’re being impacted.
  • The Victim = “The Organization”
    Who’s being hurt? Is the entire industry being disrupted? Your business unit? Is the victim your company… or the people who lose their jobs?
  • The Criminal = “???”
    Identifying the criminal can be challenging, because it may not be your competitor. In fact, it might be your management team – or even you – who allowed the crime to happen. Who killed Kodak? Was it digital photography, or was it a management team that saw it and did nothing about it?
  • The Detective = “You!”
    Sorry to remind you of this, but it’s your responsibility to solve the problems you see in your company or team. If you don’t, you should consider yourself as an “accessory to the crime.” Hint: You want to be the hero problem-solver… not a contributor to the problem!
  • The Suspects = “The Symptoms”
    Sometimes the “obvious” solution is not the right solution because you’ve chased the wrong suspect. Maybe you’d like to fix a “morale problem,” but the problem is actually a symptom of your management style (leading to poor morale on your team).
  • Time = “Deadlines”
    Do you have five days, five weeks, five months, or five years to resolve the problem?
  • The Solution = “Your Problem Resolution”
    I’ll leave this up to you. After all, it’s your problem.

It’s Time For You To Be The Detective

Just as with crime novels, complex business problems always involve people. We love to leverage technical solutions to our business problems, but just like the fictional detectives, you’re still inevitably going to be dealing with people.

And just like the characters in detective novels who have hidden wants and needs, it’s up to you – as a business leader – to sleuth, poke around, ask questions, discover, be curious, and ultimately figure out the “people issues” so you can solve them.

You are the detective! But you are not alone.

MindPrep Resource Center is here to help you be the best detective you can be so you accomplish your business goals. Reach out to us today!

Believe, But Not Too Much

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What It Takes to Be A Facilitative Manager – Part 1: Believe, But Not Too Much

By Oliver W. Cummings

3/5/2020

Feedback from my previous blog post: Facilitative Leadership and the Middle Manager’s Relationship Hierarchy.

Bill asked: Considering the eagerness of emerging leaders to take on more responsibility and move into the rank of middle management, how long is the typical journey up the pyramid? Months? Years?

This is a good question and I have no precise answer.

As I see it, the journey is dependent on two main factors:

In my own experience, I have had many relationships develop to the trust level and some to a level of confidence over the course of just a few months. It has usually taken a lot of common experience with each other and typically more than a year to get to a mutuality of interests level.

The most important factors, I think, are authenticity and integrity on both sides.

I appreciate the feedback I receive on these posts and will try to include some of the comments – whether in agreement, additive to the idea, or critical – to the subsequent posts.

My next several posts focus on some of your primary musts and some related cautions when you behave as a facilitative manger.

Necessary—but not sufficient—traits that make for effective management include: decision-making ability; assertiveness and motivation to achieve; social sensitivity; emotional stability; and appropriate self-reliance and courage levels. In addition to exhibiting these characteristics, the facilitative manager will:

  • Believe, but not too much
  • Care, but not too much
  • Feel, but not too much
  • Foster trust, but not too much
  • Demonstrate what you can’t have too much of: Integrity

Each of these balancing acts is important to establish and enhance your working relationships with your subordinates. I will address them in turn in following posts.

Believe

I believe that people, given a non-coercive environment, will develop toward and behave in a positive manner. Employees in general want to do the right thing in their work. Or, as one of my management colleagues (a trained Adlerian Psychologist) liked to say, “Nobody gets up in the morning, stretches real big, and says ‘Ahh, I believe I’ll go out and really f***- up today.’”

Given this premise, poor or inappropriate behaviors arise from a lack of understanding or misinterpretation of circumstances or from external pressures that drive the behavior and not from “bad seed” or flawed human nature.

Holding this philosophical belief makes it easier for me to see and acknowledge the good things another does. It makes me just slightly slower to judge another’s mistake or omission as malicious.

What a positive belief does is set a tone in which aspects of judgment, establishing causes for problems, monitoring performance, and giving feedback can be handled in more constructive, facilitative ways. As greater focus on facilitative management around issues is achieved, a less stressful environment within which to work is created – a win for everyone.

Management research over the past several years has shown that collaborative relationships, committed employees, and recognition of a mutuality of interests between managers and employees all generally contribute to higher overall performance and more collegial interactions on the job.

The alternative philosophy to the one espoused above suggests that people must be controlled into good behavior. It promotes relationships based:

  • more on direction (or, often, coercion) than on collaboration;
  • more on compliance than commitment; and
  • more on position power than on mutuality of interests.

And, that is a heavy burden for any manager to carry.

But Not Too Much

There are elements in every human work environment that can get in the way of an individual’s positive development being reflected in their work behaviors. Therefore, don’t believe too much.

By the time a person reaches working age it is possible that their experience has impaired their ability to appropriately interpret some circumstances. You may initially believe in their motives, but when their on-the-job behaviors are counterproductive, you must deal with the behaviors. Doing so on a timely basis is important. So, you should not let your initial beliefs delay your decisions too long.

You must measure and motivate; and direct (or re-direct) as well as plan and organize as a facilitative manager. How you go about that is important and the higher your relationships are on the Manager’s Relationship Hierarchy the easier it will be for you to deal with the issues that arise.

Next time: Care, but not too much.

What is your belief about human nature (tendency to do good or do bad)?

In what ways does your belief about human nature impact your behavior in your job?

What might cause a manager, who believes people are fundamentally good, to fail to act when a person exhibits bad behavior on the job?

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