If you consider yourself creative enough to devise a campaign and organised enough to run it, you should really learn the numbers behind it
By Vivek Mehan
The role of a PR professional is continually developing and there is an expectation to take on more responsibilities. One area that it is difficult to avoid is finance. This can range from working out how much to charge a client, negotiating with an internal stakeholder on who should pay for the next campaign and explaining to the stock market the impact of the new lease accounting changes.
Given the economic climate, there is increasing pressure to get involved with “the numbers” to understand your clients’ needs or justify the return that you can get on the spend. This is an area that is often perceived as daunting. So, what is the best way to go about increasing your financial knowledge and acumen?
Where do I start?
One of the most common problems that I’ve encountered is that people approach finance with preconceptions and bad habits. It’s very much like learning how to drive – how many people would confidently say that they would pass their driving test again if they had to take it right now? That doesn’t mean we’re not safe drivers – we’ve just learnt our own way of doing things (and thankfully don’t have to parallel park that often)!
When aiming to understand finance, the only place to start is to go back to basics.
What are the fundamentals?
One good thing about accounting is that it is reasonably consistent. At the end of any accounts there are three key statements that are produced:
- Balance Sheet
- Profit and Loss Account
- Cash flow statement
Having a brief understanding of each of these helps set the scene on why accountants do what they do, then you can move on to determining the more complex details.
[subhead] What is profit?
Profit should be intuitive. Everyone has a view of what profit is – but consider the following situation:
You have been asked by a client to organise some billboard marketing. The client agrees to pay you £500 and you have paid the supplier £300.
How much profit have you made?
Now imagine you are organising billboard marketing for a client. The customer has agreed to pay you £500 but will not pay until April 2017.
The advert ran from 15th January to 20th January 2017
You have to pay the supplier £300 in full on 15th January
The customer will pay you until April 2017
How much profit would you show in your January accounts?
Answer: a profit of £200
This is an area that many people find surprising when they first work with business finance, as it doesn’t match up with how most people look at their personal finances.
How does it work?
Accounting is based on a very important principle called the matching principle. What this means is that cost and revenues are matched to when the activity takes place rather than when the cash movement takes place. Profit is driven by the work that you do rather than the physical payment for those goods and services.
In the example above, you have done your work, you’ve arranged for the billboard space for your client and therefore you can show a profit on it in January.
In this case, your accounts would show a profit of £200 but your physical bank balance would be down £300.
As you can see, it’s easy if you know how. Gaining this understanding could make you pitch more ambitiously, organise resources more responsibly and have more involvement in a business as a whole.
So, given the increasing importance of understanding finance, CIPR has partnered with the Institute of Accountants in England and Wales (ICAEW) to tailor courses to PR professionals, boosting their knowledge in the most relevant areas. You can find out more here.
In the meantime, here are 5 ways to boost your financial IQ:
1: Ditch the negative mindset
Many people associate finance with maths; after all, there are numbers involved. This can bring back traumatic memories of maths lessons at school. Finance actually has very little maths in it, you need to be able to add, subtract, divide and calculate a percentage. Beyond that there is very little maths involved in most of finance.
2: Watch your language
The finance sector will use words that you are familiar with, but in a slightly different context or give them a slightly different meaning. For example, depreciation in an accounting sense is subtly different to how most people would understand it.
3: Make time count
Understanding finance is a skill that takes time to develop. While it is possible to pick it up ‘on the job’, this relies on having great people around you to coach you through the relevant bits. By investing time to learn (whether on a formal training course or by self-managed reading) it will become a much more efficient process.
4: Learn the basics
Rather than trying to solve an immediate challenge, finance is built on a few core principles and concepts. Spend some time building up solid knowledge and you will be able to apply that know-how to a range of scenarios.
5: Apply your knowledge
Even when learning the basics, these can be made relevant to areas that you are going to encounter. Try to ensure that any learning that you do is made relevant to how you interact with finance, using relevant examples, illustrations and case studies.
This article was originally published in Influence magazine, Q1 2017. It is worth five CPD points with the CIPR.
Image courtesy of pixabay