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What is Financial Intelligence?

Financial intelligence is the language of the business world; its importance cannot be understated.

What is financial intelligence? 

Why you and your company need it like never before.

Intelligence is fickle. It mutates and changes depending on the circumstances, scenarios, and the usefulness of particular skills and knowledge when they are questioned, challenged, and demanded.

This makes it hard to judge one’s intelligence, as humans are fascinatingly unique, harnessing a wide range of capabilities at varying degrees of proficiency and in diverse combinations with other skills and intelligence.

When people think of intelligence, they often fail to recognize the vastness of the word and its incredible applications across human abilities. Instead, they view it as one’s reasoning and problem-solving intelligence. This is what the IQ test measures, after all. Another well-known intelligence is emotional intelligence.

However, by no means are these established markers of intelligence telling the entire story about the word. Intelligence has many layers - much like an onion - and today, I want to talk about just one layer of the intelligence onion - financial intelligence.

What is Financial Intelligence?

Financial intelligence is the language of the business world; its importance cannot be understated. It’s a secret, almost foreign language for those who aren’t fluent in it, and at the same time, it’s vital, career-launching intelligence for those who’ve mastered the skills.

Like many skills, it is not innate; financial intelligence can be taught, learned, and mastered over time. You are not born with financial intelligence - humans created currency and the financial systems in place today, after all - though some may have a knack for it depending on their upbringing and individual life experiences. Knowing that it can be acquired, what are some essential skills that make someone financially intelligent?

When learning a new skill, you must start with the basics, and financial intelligence is no different. Financial literacy and measurement foundations are the first steps to becoming financially intelligent. This entails reading and understanding the basic financial statements - the income statement, cash flow statement, and balance sheet - and how these three sheets communicate with one another. Getting comfortable with the terminology is critical here, as individuals must differentiate things such as revenues and expenses, assets and liabilities, and understand when others are speaking the language. These fundamental skills are the building blocks of financial intelligence and must be understood to advance financial skills further.

With a solid grasp of the basics, individuals can become more opinionated about financial statements, question them, and make necessary adjustments based on assumptions. This does not indicate that these individuals are simply fictionalizing their financial statements; it merely means they understand that the financials are telling a story underneath the rationalized numbers, projections, and forecasts. Financially intelligent individuals know how to creatively use this information to tell the story about the business to investors, customers, and employees. People without deep knowledge of finances will view financial statements as cold, hard, and stoic; however, to the more informed eye, financial statements are vibrant and talkative, a puzzle waiting to be solved. Much like an astonishing painting or a superbly written poem can unveil hidden themes and messages, a financial statement can reveal a story about the company if correctly deciphered and read between the numbers.

The financially intelligent person is not only reading between the lines, though; they also have skills to navigate what the numbers are showing in plain sight and make apt analyses based on the numbers. This is an altogether different skill than determining the story the financial statements are telling; analyzing the crucial numbers, metrics, and benchmarks allows them to make informed and ultimately better decisions for their companies. Interpreting the numbers and making decisions based on the ratios - such as understanding the need to decrease the customer acquisition cost (CAC) if the lifetime value (LTV) to CAC ratio is nearly level - leads to better overall health and performance of the company if there is an actionable solution from the analysis. Having a keen eye on the financials and analyzing and detecting potential issues can save the company from disastrous outcomes and make it more profitable in the long run.

Finally, the last major piece of financial intelligence is having a broad understanding of the economic environment around your business. Often, a financially literate individual will get consumed and fixated by their business performance that they’ll fail to recognize a sudden shift in consumer behavior or a daunting competitive presence entering the market. Having a narrow view of the financials can be just as harmful as ignoring them altogether because the individual is oblivious to their surroundings and could make a well-intentioned decision that severely damages the company. Having a foot firmly planted in reality is a must for any financially intelligent individual as it allows them to view their financial statement with a much-needed level of context to use the skills mentioned above to analyze and decipher its meaning while considering external factors that could affect decisions. This last part of financial intelligence is becoming increasingly important today, as the economy shifts and the competitive landscape rages like a forest fire that grows exceptionally.

Why do you need financial intelligence?

Looking at the business world today can be completely overwhelming. There are countless industries full of companies with brilliant, qualified, and determined people at the helm. Starting your own business can be daunting, especially if you don’t have financial intelligence. However, harnessing these skills for the betterment and survival of your business in an ultra-competitive world is essential. Thankfully, it’s not impossible to uncover these skills and become more financially literate than you ever thought possible - though it will take considerable time and effort. Start with the basics, read books, read financial statements, ask questions, take action, and try to avoid analysis paralysis.

Many transformative tools at your disposal will help unleash your financial intelligence - such as the book Financial Intelligence by Karen Berman and Joe Knight, which packs an unimaginable amount of wisdom to help you along your financial literacy journey in only 260 easily digestible pages. Other books, podcasts, and courses can help give you the financial intelligence your business relies on you to have. We at Profitual also pride ourselves in liberating financial intelligence by reducing barriers to understanding financials by creating beautifully designed, easy-to-understand, user-friendly financial models and so much more.

Brady Vandervelden

Fintech Business Lead