Financial expertise required by an accountant, manager and business owner

Financial expertise required by an accountant, manager and business owner

Finance & Accounting

Arun Joshi

Arun Joshi

214 week ago — 6 min read

Many owners of small and medium enterprises are seen to be lacking a sound knowledge of finance and in India they are candid enough to openly acknowledge their lack of awareness of how the finance function works. The most unfortunate part is that they mix up all kinds of knowledge of finance and take it for granted that being weak in this area is okay and it has worked. They have a lot of knowledge of finance acquired during the course of business, especially the financial work that has to be done every year. But it has been observed in a market survey that most of the small and medium enterprises owners lack the exact knowledge that they need to have ‘as a business owner’.

We have made an attempt here to classify the knowledge in the finance function so that the business owner understands where they are not supposed to waste their time in learning unnecessary things and where they are supposed to know the topic perfectly to take correct strategic financial decisions. Following is the classification of financial knowledge based on which professional should possess it.

One of the most important areas where a small and medium scale industry owner is expected to have very good knowledge of finance is strategic financing and cash flow management.


Accountant’s financial knowledge

Accountants are typically commerce graduates or chartered accountants. Typically, in Indian small and medium enterprises setup they do the work of post-facto measurement. This means they measure for account whatever has happened after it has happened rather than getting involved in planning what should happen.

Also read: 6 tips to improve the financial health of your business


Chartered Accountants

Small and medium enterprises engage chartered accountants for accounting, audit, taxation, compliances, reportings, filings, and any other statutory work. Chartered accountants are mostly seen doing accounting work rather than strategic financial management.

Chartered accountants are highly qualified, capable people who do have the concepts of strategic financial management very clear in most cases. Small and medium enterprises should actively appoint chartered accountants for strategic works and should compensate them separately for this work. If additional piece of strategic advice is treated as a free add on of the routine engagement, no quality output will be obtained. A chartered accountant should not be engaged for strategic management activities (like mergers and acquisitions) if they do not have the strategic business perspective.

Manager’s financial knowledge

Managers are from the operational vertical for technical functions or from support functions such as projects, manufacturing, marketing, human resources, information technology, procurement, etc. They seldom have any formal education in finance. However, their decisions have a direct effect on the cash flow and profitability of the company. Hence, they should be provided advanced training on how to increase the cash inflows; how to realise the cash flows quickly; how to reduce the cash outflows; and how to delay the cash outflows without causing any other adverse effects. They should be given sufficient freedom to play around their decisions to increase profit or to decrease costs. They should be involved in budgeting and planning and review of financial performance.

Also read: 5 tips for SMEs to plan a financial strategy

Business owner’s financial knowledge

Finance is a specialised function and there is a lot of advancement into various domains and subdomains in finance. A typical small and medium enterprise owner need not bother about the complex developments in the financial world. S/he needs to have the basic minimum simple concepts very clear. It is not at all difficult to understand the basic concepts of finance for a business owner if they are explained in simple language. It requires only a very basic knowledge of school mathematics to understand the finance function from the business perspective. One of the most important areas where a small and medium scale industry owner is expected to have very good knowledge of finance is strategic financing and cash flow management.

Business owners need to network with chartered accountants who have traits of a chief financial officer. A business owner is supposed to keep very good relationship with the bank and other lenders. S/he is not supposed to waste their time in learning the Tally software or the ERP software and all the rules of accounting entries. S/he also need not worry about how to prepare financial statements.

So, what is a business owner supposed to know and do on the financial front?

Well, a business owner should be able to know what activities to carry out in the business; what are their relative priorities; what is the requirement of amount for them; when are these amounts required; how to raise these funds and from whom; on what terms and conditions and at what cost; when are these amounts to be paid back; how to pay back these amounts; what to do if there is a shortfall; where to place the surplus cash, etc. In addition, a business owner is expected to know the interpretation of the projected financial statements of their own company in terms of profit and loss statement, balance sheets and most importantly the cash flow statement.

Also read: A roadmap to ease your financial worries in this crisis starting this minute


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Arun Joshi

Apohan Corporate Consultants Private Limited, Pune, India is a leading strategic business services company into the business of consulting & implementation services for...