Financial Intelligence

Book Review: Financial Intelligence by Karen Berman & Joe Knight

Dave Kinnear1-On Leadership, Book Reviews

In this iteration of their book, Berman and Knight focus on understanding finances for 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.

Get the book at Amazon.