By Mark Rowland MembersWhy it pays to make your clients and colleagues more financially savvy29 Sep 2020 As businesses face an extremely economic climate, accountants explain why financial knowledge is essentialBasic financial literacy has never been more important than it is right now. Business owners need to be more switched onto their finances than ever before. Likewise, staff in any budget-controlling roles need to understand how they fit in with the wider financial picture within the organisation.Some of the benefits of teaching financial skills to non-financial colleagues and clients include:A better understanding of financial dataMore accuracy in invoicingBetter cash managementAccountants share their views on the benefits of financial literacy, and how they’ve taught colleagues and clients to be more financially savvy.Enrol onto the AAT Accelerated Pathway: Technical Update 2020-21Access a wide range of webinars, articles, discussions and podcasts on the latest technical updates you need to know to stay ahead.Enrol nowPeople need to learn the difference between cash and profitMark Jenkins, finance director, MHROne of the biggest concepts that people don’t understand is the difference between cash and profit. In the current economy, that lack of knowledge could be fatal for a business – a business can live without profit, but it can’t without cash.There are two big benefits of getting non-financial people to understand financial concepts. Firstly, they will understand how the numbers come together, you have more buy-in for your reports and when you’re discussing variances, they understand how it can happen.Secondly, people realise how important it is to get things right-first-time. Invoicing issues are often created by people in the business making persistent errors, for example, because they don’t understand why it matters. You may have controls to catch those errors, but it’s still a big reputational risk.Finance isn’t really a back-office function; if the invoicing is wrong, the customer has a bad experience, in the same way, that a bad product or sales experience would reduce their trust in the business.How I teach financial skills: I set up finance for non-financial people workshops.Good financial knowledge means good decision makingJoanne Harris, technical commercial manager, Nixon WilliamsEncouraging clients to become financially savvy not only helps the client to feel more confident and in control of their business – it also helps us as accountants. A client that is in control of their finances is much more likely to provide you with timely and accurate information. Helping clients understand key aspects of their accounting will build more trusted relationships, and this increased transparency will benefit both parties.For freelancers and contractors running their own businesses, it is essential that they are on top of their finances. Knowing how much profit they have in the company is vital so that they know when they can pay out dividends and make personal spending decisions. It is also essential for making business decisions. Managing their business finances effectively is really important as this can help them to grow their businesses and manage tax efficiently.We provide tools to our clients so they can understand what the financial position of the company is throughout the year and will always take the time to walk clients through their financial statements, particularly the first time they receive them.How I teach financial skills: We take the time to explain the differences between different types of expenses and if they can be claimed for and crucially, the impact of this on personal and company tax.Financially savvy clients avoid bad debtRobin Lee, partner, Streets Chartered Accountants,By becoming more financially aware and savvy, clients know where they stand more effectively. If they are more aware of a situation, they can use short-term finance options to recover their positions. That way they can plan ahead and anticipate any bills or expenses that need to be met without getting into difficulties. This negates the chances of having to use expensive short-term credit or finance solutions to meet obligations. This is all the more pressing at the moment, with this Winter likely to hit both clients and their customers with restrictions around COVID-19 and the fallout that the initial lockdown period produced and any further business continuity being disrupted.Cash is going to be the leading issue as we enter even more uncertain waters so lately we have been placing more emphasis on projections, particularly regarding cash flow. As a result, many of our clients will have thought more thoroughly about their obligations towards cash flow, their stock levels and their overall business health which can only be a good thing. As people look to us for financial advice, it should always be at the back of our minds to promote good practice and that’s certainly something that most clients find useful.How I teach financial skills: When we’ve been delivering financial accounts, we’ve included projections too just to underline the importance of contingencies.Enrol onto the AAT Accelerated Pathway: Technical Update 2020-21Access a wide range of webinars, articles, discussions and podcasts on the latest technical updates you need to know to stay ahead.Enrol now Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.