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Top 5 Concepts You Must Know As a Finance Professional in 2024

Understanding finance is complex. Traditionally, the the accounts department is entrusted with handling the finances of the organization. This is usually helmed by a finance professional with knowledge and expertise on various financial topics. 

For any business, finance is one of the most important functions and areas. Businesses have monetary funds, transactions, daily cash flows, etc. It is essential that all these are monitored and maintained regularly, which aids in decision-making by organizations.

From hiring employees to purchasing material, from developing new products to making investments in marketing – requires making a business investment. Without careful financial management, running the business successfully and efficiently will not be possible. 

The impact of finance on a business is exponential. Most importantly, it plays a direct role in supporting business decisions. Suppose a business runs a marketing campaign. It is the function of the finance professionals to provide detailed sales reports along with profit or loss figures. 

This review by the finance team determines whether the campaign was a success or failure. The main aim of any business is growth. With proper financial reports, management can take decisions regarding expansion and achieve new milestones. 

Making an impact as a finance professional is a Herculean task. The professional should have expertise in various financial core concepts for better performance and enhanced productivity. 

Inflation analysis

Often, we all talk about inflation. In simple terms, inflation means a surge in commodity prices and services. However, when we talk about inflation from a financial aspect, it means a sustained surge in the prices of various services and goods over a particular period of time. This increase is directly in relation to the value of the national currency. 

Moreover, if a business organization operates on a global level, inflation will definitely impact your price point, when you intend to sell your products or services outside your country. 

Simple Interest and Compound Interest 

Simple interest and compound interest are the most common concepts used in corporate accounting and finance.

A finance professional must read through a financial agreement thoroughly to know what kind of interest the company is liable to pay. The amount to be paid for simple interest will be less than the amount  with  compound interest. 

As the name suggests, simple interest is straightforward. It is a minimal percentage of the main balance of your deposit or loan. This interest is paid out or charged on a regular basis by the financial institution or creditor. It can be monthly, quarterly, or yearly. 

Compound interest is slightly complicated. The amount that you will receive or pay regularly will be the interest rate on the principal amount compounded with previously accrued interest. 

For a finance professional, it is important to have a solid knowledge of the ‘interest’ concepts. 

Liquidity 

Liquidity indicates the accessibility of your assets. In simple language, it means the monetary value that you will get if the assets are sold or bought today. Corporations must have balanced liquidity as there are chances that creditors can demand money at any time. 

Liquidity is an essential concern for companies due to many circumstances requiring the rapid liquidation of assets. For instance, an uncleared debt or losses during a financial quarter might need to be absorbed with the partial liquidation of certain assets.

Diversification, as well as asset allocation, are important items of the investment strategy.. Though these terms are commonly used, not many know their practical usage. However, a finance expert should have a clear understanding of both concepts.

First, let us discuss asset allocation. Determining the asset allocation of a portfolio means deciding on the types and volumes of the assets with the best risk-return balance. This is done by considering overall investment objectives and risk tolerance factors. 

Diversification of a portfolio is integrally connected to asset allocation. In layman’s language, asset diversification means making investments in different kinds of assets, instead of putting all investments in a single place. 

Take the opinion of any finance expert and they will all opine in unison that a diversified portfolio has fewer risks. Moreover, such investments yield larger returns in the long run. This risk-management strategy is not only common but also extremely popular with corporates as well as individuals. 

Net Worth and Risk Tolerance

We keep  hearing about the net worth with reference to a person’s total valuation (particularly celebrities) o. In the business context, net worth has a slightly different meaning. 

Net worth in business can be defined as the difference between total business assets and the amount the business owes to various financial stakeholders and creditors. If the net worth is positive, it means the business has good financial health. On the other hand, a negative net worth means the company is running at a loss. 

Though risk tolerance doesn’t have to do much with the net worth of a business, it is essential to know this term. There is no solid definition of this financial term. However, risk tolerance can be defined as a kind of indicator of the amount of risk one is willing to take with one’s investments. 

Some investors have a high-risk tolerance. They are ready to make investments for a shorter time span to make more money (higher stakes investment). On the other hand, there are investors with low-risk tolerance. They plan to invest small amounts of money for  long-term investment. 

Key Technical Skills Needed for a Career in Finance

Having some technical skills is really helpful for making a great career in finance. Some of these skills are:

• Data Analytics

The finance department deals with huge volumes of structured and unstructured data and lots of numbers. It is the job of financial analysts to analyze this data and draw insightful conclusions from them. 

With data analytics, it is not only possible to provide historical data on the business’s performance; but also make forecasts regarding costs, revenue outcomes, and cash flow. With predictive analysis, finance professionals can remain ahead in the game with their competitors. 

• Accounting and cash flow management

This is one technical skill in which every finance professional should be an expert. Cash flow management includes monitoring, evaluating, and optimizing the cash revenues of the company after deducting the costs. 

With cash flow management, the business manages its finances by tracking the coming in and going out of the funds. It is seen that businesses with efficient cash flow management are able to develop long-term strategies and are able to prevent financial losses for the company. 

Therefore if you want to be a successful finance professional, you must have technical skills in accounting and cash flow management. 

Key Soft Skills Needed for a Career in Finance

For a successful career in finance, professionals need to have certain essential soft skills. Some of them are:

• Leadership capabilities 

It is important that a finance professional has strong leadership skills. Along with being ambitious, the professional should be able to adapt well to changing circumstances. The person should be able to embrace personal development and learning process incessantly to step into senior roles whenever need be.

It is great if the professional is able to motivate, mentor, and engage other members of the team along with generating new ideas and sharing new insights. 

• Good business knowledge

The scopes of finance jobs are expanding rapidly. It is highly appreciated if the finance professional has a sharp business understanding. This helps in developing strategies, working on cross-departmental collaboration, and informing key decisions within the business organization. Such professionals should have a broader vision of the business. 

• Excellent communication skills

Having good communication skills is a prerequisite for any finance professional. This is important so that they can explain the nitty-gritty of financial matters in a lucid manner. Professionals in other departments of an organization might not be familiar with finance jargon and accounting principles. Getting any point clearly to them is possible with good communication skills. 

• Technical expertise 

Finance professionals must have solid skills in accounting technology. They should be proficient in using software programs that are finance-specific, like QuickBooks or Hyperion. 

With the increasing popularity of cloud computing, it is highly preferred if a finance professional has proficiency in enterprise resource planning (ERP) and the latest database applications. 

• Analytical and problem-solving skills

It is very important to have analytical and problem-solving skills for working in the finance industry. With analytical skills, the professional can review data for identifying patterns, additional funds, as well as discrepancies in the company’s finances. 

A finance professional should always be ready to tackle financial problems within the organization. With problem-solving skills, the professional will approach tough financial situations with confidence. 

How to acquire these skills?

For acquiring skills in finance, you have to keep in mind certain simple things.

• Try applying finance skills in your daily life. Try setting budgets on a weekly or monthly basis. Try keeping track of your expenses by maintaining spreadsheets.
• Try identifying the weak areas. Master the skill of using computer software for carrying out finance-related jobs. Find the challenging areas and work on them to bring in improvement. 
• Try getting industry certifications through finance professional courses. This is really helpful for entry-level roles. Along with improving finance skills, these certifications are great resume enhancers too. 

For learning these key concepts of finance, the Hero Vired Integrated Program in Finance and Financial Technologies is an excellent gateway. It is among the most comprehensive finance professional courses and is offered in collaboration with MIT, along with integrating into the MITx MicroMasters Program.