on January 31, 2009
This book is very well written. The authors' style of writing makes this topic easy to absorb. The authors show you how to get insight from the numbers on financial statements and how that insight might affect your decisions. They also discuss some other financial calculations like ROI which was very helpful. Not just for business owners, this information would be helpful for anyone that wants to examine and understand financial statements. Probably the equivalent to a 200 course, this book is very useful by itself. It would also be a great foundation to build your knowledge on.
Several years ago, I read and reviewed Finance for Managers, one of the volumes in the Harvard Business Essentials series. The material provided in it is drawn from a variety of sources which include William J. Bruns, Jr., Michael J. Roberts, and Robert S. Kaplan as well as Harvard Business School Publishing and Harvard ManageMentor®, an online service. Samuel L. Hayes served as subject advisor to Richard Luecke, author of this and other books in the Harvard Business School Essentials Series as well as more than 30 other books in the series as well as several dozen articles. What we have in Financial Intelligence for Entrepreneurs, co-authored by Karen Berman and Joe Knight with John Case (also author of Open-Book Management and The Open-Book Experience), are information and advice that respond directly to the needs of those who are planning to launch a new company or have only recently done so. I think the material will also be of substantial benefit to decision-makers in companies that seek to become more entrepreneurial.
At a GE annual meeting, then CEO Jack Welch explained why he thought so highly of "small, sleek" business operations: "For one, they communicate better. Without the din and prattle of bureaucracy, people listen as well as talk; and since there are fewer of them they generally know and understand each other. Second, small companies move faster. They know the penalties for hesitation in the marketplace. Third, in small companies, with fewer layers and less camouflage, the leaders show up very clearly on the screen. Their performance and its impact are clear to everyone. And, finally, smaller companies waste less. They spend less time in endless reviews and approvals and politics and paper drills. They have fewer people; therefore they can only do the important things. Their people are free to direct their energy and attention toward the marketplace rather than fighting bureaucracy." This seems to have served as a model for "bowing up" of GE after Welch became its CEO in 1981. At that time, its market value was $14 billion; twenty-three years later, it was more than $410 billion.
I share all this by way of creating a frame-of-reference for what is provided in this volume, a new edition of a book first published (entitled Financial Intelligence) in 2006. Although the focus in this second edition is on entrepreneurs, the material provided will help all managers to develop the entrepreneurial mindset to which Welch refers, and, to acquire a highly-developed financial intelligence quotient (FIQ). Moreover, they can then do everything they possibly can to develop a high-level of FIQ among others at all levels and in all areas of their organization. In the Preface, Berman and Knight explain what their reader will learn:
1. How to read the three major financial statements (i.e. income, balance sheet, and cash flow) and how to interpret what they contain
2. How to calculate critical ratios and to understand what they reveal
3. Why net cash in a given time period is not the same as profit and why a company needs both profit and cash
4. How to use various return on investment (ROI) tools to analyze big purchases in order to make certain the investments add sufficient value to the business
5. How to manage working capital that helps to improve a company's cash flow and profitability even when there is no change in sales or expenses
6. How to use the three main methods for establishing the value of a business (i.e. the price-to-earnings ratio method, the discounted cash flow method, and the asset valuation method) "and many other tricks of the financial trade"
"Along the way, we'll let you in on the finance profession's little secret, which is that finance is as much art as it is science." Berman and Knight explain why understanding this "little secret" is so important to acquiring a high-level of financial intelligence.
They carefully organize their material within 30 chapters that are divided among eight sequential Parts: The Art of Finance (and Why It Matters), The (Many) Peculiarities of the Income Statement, The Balance Sheet Reveals the Most, Cash Is King, Ratios: Learning What the Numbers Are Really Telling You, How to Calculate and (Really) Understand Return on Investment, Applied Financial Intelligence: Working Capital Management, and Creating a Financially Intelli9gent Company. They also provide three appendices: Sample Financials, Exercises to Build Your Financial Intelligence - Income Statement; Balance Sheet; Cash Flow Statement; Ratios, and Under Armour and eBay Financial Statements. At the conclusion of each Part, there are contributions to the filling of the reader's "Toolbox."
Other reviewers will have their own reasons for admiring this book. Here are three of mine. First, this is not a "Finance for Dummies" although a financial novice will find nothing in it that is over her or his head. With consummate skill, Berman and Knight present and explain substance without compromising it. And when doing so, they prepare each reader to help others to increase their own FIQ by providing a model for those initiatives. In fact, Berman and Knight consider those efforts to be so important that they devote the final three chapters (Part Eight) to explaining how to create a financially intelligent company. I also appreciate this book because the authors immediately establish and then sustain a personal (rather than professorial) rapport with their reader. They use direct address throughout the narrative. For readers who are financial novices, they anticipate and address the concerns. For other readers with more developed FIQ (especially CFOs, comptrollers, office managers, and accountants) they offer a systematic review of material (e.g. nomenclature and core concepts of finance) that is already familiar to them. However, there is much to be said for reminders of what can sometimes be neglected or ignored. Finally, I appreciate the dozens of examples drawn from real-world situations that illustrate some of Berman and Knight's key points. This is especially appropriate, given the conversational (rather than professorial) tone that they sustain throughout the narrative.
One final point: All organizations have an urgent and constant need to reduce (if not eliminate) waste. Increasing the FIQ of as many workers as possible will enable them to recognize and, better yet, understand the bottom-line impact of waste and will thus be more likely to become not only involved but engaged in efforts to help their organization to reduce (if not eliminate) waste. If I were a CEO of a company, I would purchase a copy of this book for every line manager and make it required reading. And if my company has not already devised and then implemented an FIQ education program, to be implemented throughout the enterprise to varying degree, I would immediately appoint a cross-functional team of my best and brightest to do so.
I congratulate Karen Berman and Joe Knight together with John Case on a brilliant achievement. Bravo!
on July 12, 2009
For those who are investing in a company or their own business, this is a must read book. This book makes analyzing the numbers on the financial statements clearer for those who may need more of an understanding in that area. It has helped me to better evaluate companies that I am interesting in investing in.
on May 19, 2008
Berman and Knight have done the impossible - make finance clear, interesting, even fun! Finance is not one of my favorite topics. I typically nod off when engaged in finance-related conversations or sitting in yet another, interminable budget meeting. But I actually found myself looking forward to picking up this book, whenever I had time to read, for yet another discussion of balance sheets, profitability ratios, and yes, my personal favorite, EBITs.
I wish I had this book years ago. Their explanations are clear, their ripped-from-the-headlines examples are relevant and compelling, and their writing style is lively. Their frequent playful and humorous asides help to humanize the material.
There are many helpful features in this book. Among my favorites are the embedded glossary (definitions that appear on the page where the expressions are first used rather than at the end, requiring the reader to flip back and forth) and the toolbox at the end of each Part that gives the reader a hands on opportunity to try out the concepts they have just learned. I also appreciated their emphasis on finance as art not science, subject to assumptions, biases, even manipulation and fraud. I guess I knew that, but I didn't realize just how subjective it can be. Another discussion that I also found very helpful was the difference between cash and profit, and the relationship between the two. I thought that their description of this critical topic was especially lucid, lifting the fog that usually accompanies my attempts to understand, and most important, apply this concept.
This book is a must read for any human resource professional. No longer will we be sloughed off to the side when money, not people, is the main topic at hand. Armed with this book, we can participate fully in these conversations and even influence the outcomes by demonstrating how human resources - the people and the function - can help the organization make more money.
on April 12, 2009
In this iteration of their book, Berman and Knight focus on understanding finances for the Entrepreneurs. I have read many books on the financial statements, ratios and indices that apply to businesses, and this book is among the best. In one place there is a clear explanation of the various reports, how the numbers are derived, what they mean and how to organize your company to positively affect the indicators you need and want to change.
The authors also make learning a useful, hands-on and enjoyable experience with worksheets in the appendices using the information for a fictitious company. Of course, the readers are invited to also use their own company's financial data to develop their understanding of the finances. Despite making things easy to understand, the art of accounting is not obscured or ignored. Berman and Knight make it clear that many of the key numbers we use to "dashboard" our businesses are really not much more than estimates. Informed estimates to be sure, yet still, the numbers are subjective rather than fact. The goal of the accounting team is to get the numbers as close to reality as they can. The goal of the financially intelligent leader is to understand where the art ends and the reality begins.
The book starts with five critical questions:
* Do you know whether you will have enough cash to make payroll next month? How about the month after that?
* If you're running a start-up, do you know your burn rate - that is, how fast you are going through your cash?
* Do you know how profitable your company's products or services really are: do you know that you can be running a profitable business and still run out of cash?
* If you're thinking about buying a new piece of equipment - a truck, a computer system, a machine - do you know how to figure the likely return on your investment?
Of particular importance in today's economic environment is how managers will become focused on cash and cash flow. The authors re-enforce the usually well known but often forgotten admonition that we can be cash rich and not profitable, or highly profitable and run out of cash. As we watch our economy reset to be less consumer driven and more savings oriented economy, we will need to not only serve our customers in an entirely different way, but will also have to re-focus on using all of our financial intelligence to guide our companies to success.
This excellent book, should be on every business owner's, business leader's and employee's desk for easy reference. Financial experts can use it as an outline for in-house seminars on finance for all employees. Well run companies that will survive and perhaps even thrive during this economic tsunami will make sure that everyone in the company attains Financial Intelligence.
on July 18, 2008
Financial Intelligence for IT Professionals seeks the elusive sweet spot between being approachable on the one hand and substantive on the other. If you are looking for the bible of corporate finance or an alternative to an MBA, you'll probably be disappointed. If, on the other hand, you or your employees would benefit from a clearly written and well organized introduction into corporate finances, you really can't go wrong. Berman and Knight do an excellent job covering the basics, including income statements, balance sheets, cash flows, ratios, and measures of investment/project performance. The examples provided are simple enough to illustrate the concepts without feeling dumbed down. I was particularly impressed with the clear manner in which the concept of cash flow was presented, as, in my experience, the difference between income and cash is a topic often misunderstood by folks without financial training. In addition to the concepts listed above, the authors make it a point to highlight how financials can be influenced, intentionally or not, by the assumptions and actions of executives and accountants.
Here is where we run into my first (very small) criticism. While I appreciate the discussion of some of the `gray areas' that can be found in accounting and finance, I think the focus on fraudulent behavior is a little out of balance. Certainly there have been several great scandals over the last few years to provide fodder, but in my experience most financial executives make honest judgments to the best of their abilities, usually under tremendous pressure. My second tiny criticism is that the author's suggest a number of times that an IT leader equipped with financial knowledge can more intelligently challenge the assumptions of controllers, CFOs, etc. In my organization, this is encouraged and, frankly, expected of top level managers. In other organizations, however, questioning the CFO might get you a short trip to the unemployment office. Readers will need to use some judgment here...
The book concludes with a brief discussion of the value of employee financial knowledge to the performance of the company. The case is well stated, and the author's passion for the empowering impact of financial intelligence seems genuine. I am fortunate to work for an employee owned company that really emphasizes financial understanding for all employee-owners, but I also know from prior experience that my company is the exception, not the rule.
Bottom Line: This is a book whose impact on your organization will grow with the number of people who read it. So buy a few, and share them with anyone who in interested. That's what I'm going to do.
on May 11, 2015
Unlike other financial books interpreting balance sheets, this book is very interesting read and keeps you absorbed.Very practical explanations are there along with some more book references for further reading on open book management.
on November 3, 2008
As a classic small business owner who wears every hat, including CFO but not being very good at it, this book is an invaluable resource for me. I am one of those people who picked up Berman and Knight's original Financial Intelligence and said, "Hey, I need this information for myself and my business." The book takes you through the basics of P&Ls and balance sheets and cash flow and all of the financial mumbo jumbo that you aren't taught unless you go to business school, and turns it into tangible, easy to digest concepts that even someone with no financial acumen or education can understand. The most enlightening part of the book is the premise that finances are an art as well as a science. I always believed that numbers are numbers and they don't lie. Berman and Knight set me straight and set me free, teaching me that even as a non-financial expert, I can understand, manage and interpret my own bottom line.
on May 6, 2009
As a director of HR, I am continually surprised at the number of HR professionals that are disengaged from their company's profit and loss. A recent survey of business executives validated my personal observations about my chosen profession. According to this group, HR is often viewed as follows:
1. Neither Strategic nor Leaders
2. Resists Creativity
3. Enforces Silly rules
4. Impedes Change
5. Measured on Activities not $ Results
6. Henchmen for Top Management
7. Service Only
This important book will help us to address numbers 1, 5 and 7. Having at least a basic sense of the financial arena will improve our integrity and respect in the eyes of upper management. Continually developing and implementing activities with no eye to the bottom line results in the current world-view of HR. I know that many within HR will disagree with me and that is fine. I realize there are pockets of excellence but as a general rule, we are still evolving.
Karen Berman and Joe Knight have performed the heavy lifting for us by publishing this book. It is an excellent place to start laying the financial foundation upon which we can make good decisions and grow our human resources departments into results-based teams. Their book teaches us to ask intelligent questions and to challenge the data. Most importantly, it instructs us in the imperative world of ROI. ROI should be the hallmark of every HR organization.
I hope you find this review helpful.
Michael L. Gooch, SPHR - Author of Wingtips with Spurs: Cowboy Wisdom for Today's Business Leaders.
on June 11, 2010
I just read two finance books back to back. It has been a while since I studied finance and needed some refreshing. I will say that this is an excellent book but if you are new to finance I highly recommend reading "Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports" first and then following up with this book to solidify the concepts. Most books make finance seem like it is an exact science and in reality it is not. This book goes explains in detail how finance is just as much an art.