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Even good managers lack this skill

About the author

Eric is a freelance journalist who lives in Fort Lauderdale, Florida. He is formerly a writer and editor at New Times in Fort Lauderdale and The Pitch in Kansas City, Missouri. His work has been featured by  the Florida Center for Investigative Reporting.

Many top-level managers neglect this crucial skill.

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When Francis Halzen set out to build a gigantic telescope at the South Pole nearly a decade ago, he found himself with a major problem.

He had no idea what he was doing.

The University of Wisconsin-Madison theoretician is a foremost expert in his field, known internationally for his work in neutrinos, a rare, mysterious element. But what he didn’t know, the thing that was completely beyond this genius: how to run a construction site for a kilometre-wide telescope on the South Pole.

“The project was such that if you missed a deadline one season and got delayed, it would cost you $10 million,” Halzen said, recalling shipments that needed to arrive before the South Pole’s long winter set in. “If I had to do this myself ... I would have been fired.”

So Halzen hired a team of experts: a project manager to oversee construction, an expert in staging to organize construction equipment and a finance expert to meticulously track the budget using sophisticated computer models.

That last bit, the strict attention to a budget, is something managers seem to be expected to be able to do with ease, but in reality, it’s a skill few leaders in business can muster on their own. Most middle managers earn promotions by being good at what they do, and they rarely receive training in even the most basic financial skills needed to supervise others.

For new managers in the bowels of a big corporation, it can be difficult to imagine their small team having much of an effect on the company’s profitability. But management experts say learning how to figure out how your little department factors into the company’s profit and loss will help leaders, and their firm, become more successful.

Sure, the average college graduate who studied business and any MBA grad ought to know how to balance a P&L, but managers who lack that kind of preparation must navigate their way through financial documents on their own.

If you’re among those who still have to ask whether being in the red is a good thing, know this: a lack of solid financial acumen can stymie your career and make it difficult for you to lead others successfully. You can’t wing it. It might seem like a point of failure to ask for help. But, without it, you won’t get far.

First Steps

The first step is to brush up on the basics, said Yiorgos Allayannis, professor of business administration and associate dean for the global executive MBA program at University of Virginia’s Darden School of Business. For some managers, that means learning how to read balance sheets and developing an understanding of how to compare profits versus cash flow.

From there, make sure you understand the basic ratios that signal health for a company in its industry. For software companies, that’s often returning customers, not just sales. In retail, it’s regular profit margin. Residential construction managers, you might look to new home starts. This will help you decide whether to make an investment in a project, in part based on whether it can help make the company more profitable. Balance sheet newbies should expect a somewhat steep learning curve.“The language of finance is difficult, but just like any language, it can be learned,” Allayannis said.

It’s more likely that workers in the United States will know basic financial skills than counterparts across the globe, Allayannis said. Nowadays, US colleges and even some high schools are teaching students how to balance budgets. New managers in cultures where bosses are viewed as infallible may also be less likely to ask for help.

Libby Nicholson oversees training and development for on-the-job training programs at Kingston Health Care, a 1,700-employee company in Ohio that owns and manages nursing homes and assisted living communities. She said employees on the management track often lack financial skills they’ll need. That’s especially true among people whose jobs focus on specific skills that rarely intersect with financial acumen.

The kitchens at Kingston facilities are a prime example. The kitchen manager needs to figure out how to serve good, nutritious meals within the budget — even if residents wish they could have lobster twice a week.“For nursing home residents, food is one of the most important parts of their lives,” Nicholson said. “New kitchen managers need to know they can’t serve steak every day, but they can figure out a way to serve it on Mother’s Day and other special times.”

At the senior level of management, new Kingston supervisors get extra training during trips to the home office in Toledo, Ohio. They meet with leaders in information technology and human resources, of course. But they also sit down with an accountant to learn the basics of budgeting. Administrators get even more training: they spend eight months learning the ropes.Nicholson said one goal of the training is to identify good leaders who happen to be math-challenged and provide extra help. Nurse supervisors who aren’t good at budgets, for instance, will be paired up with someone from accounting who can help.

Halzen learned a similar lesson while building his South Pole telescope. He never even stepped foot on the construction site. He did what good managers do: realized his shortcomings and found the right people to help — and monitored the progress, learning something himself along the way.

“I let the people who knew what they were doing get it done,” Halzen said.

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The language of finance is difficult, but just like any language, it can be learned