So when you can forecast out the future performance of the business and tie this to the strategy of the company, oh my gosh, you are on a really good path, because you'll know what's working, what's not working and where to make adjustments on an ongoing basis. This podcast, boosting your Financial IQ, is about business financial literacy, strategies for profitability and the principles taught at byfiqcom. My hope is that you will apply the lessons learned and that we can work together soon in my mastery program. Enjoy the show and don't forget to subscribe. Here are the five financial skills I wish I would have had when I was starting out in business, because when I was 16 years old, I started my first company, I grew it into a multimillion dollar business in my early twenties out of my sister's garage. I had no clue what I was doing. I had no idea how to read financial statements, I made a ton of mistakes and I left a lot of money on the table and, trust me, I don't want you to go down the same path. So here are the five financial skills that you could focus on in order to be more effective, either as a business leader or a business owner, and if you're an aspiring financial professional, this is just going to help you to fast track your career. Now. You don't have to be a nerd, you don't even have to be in a financial position. In other words, you don't have to be the CFO or the controller or the accounting manager. You could be a business development rep or you could be an HR manager, whatever your position is. By understanding these five things just from a high level, will make you so much more effective.

All right, so number one skill number one is understanding the fundamentals of finance, more specifically, understanding the story behind the numbers. In order to do this, you have to know how to read an income statement, a balance sheet and a statement of cash flows. I'm not talking about just looking at these financial statements. I'm talking about understanding the story behind the numbers and knowing how they all connect and, ultimately, how to figure out the free cash flow of the business. All right, so that's number one, the fundamentals of finance. Skill number two is to learn how to analyze a company of finance. Skill number two is to learn how to analyze a company.

This involves looking at the different drivers and identifying KPIs, key performance indicators and metrics that are contributing to the value creation of the business. So when you analyze a company, you want to look at the historical performance, right, and you go month by month and you go back as far as you can. So if you have 10 years of data, great, if you only have five years, that's fine. Whatever data you have, try to look back far enough so you can understand the trends. That's really important. When you're analyzing these financials, you have to ask yourself okay, is this change or is this variance? Is it permanent, is it temporary or is it just a result of some type of accounting treatment? All right. So when you identify these things, you could look at trends, you could graph them. I have software that I use in my business and in the businesses I work with, called Mative, and we track these KPIs in a very visual format. Whatever tool you use is just helpful to see things visually right. You could be like all right, we're going up here, we're going down, right, we need to make some improvements here and there. But that's the whole process of analyzing financials.

But this builds from skill number one. You have to know how to read an income statement, a balance sheet and a statement of cash flows in order to perform an analysis. Otherwise, you're going to just be looking at a bunch of random things. Now, also, part of the skill set is being able to break down value. So I like to break down value into a logic tree. So I'll break down things into their component parts. So, for example, if I'm looking at free cash flow, free cash flow is derived from net operating profit after tax, plus or minus your changes in working capital and capital expenditures. So then if I go up to net operating profit after tax and I break that out into a tree, then I can say, okay, it's derived from revenue and cost. And then I can break down costs further into cost of goods sold and operating expenses and I build this giant tree for organizations so I can pinpoint exactly where are the drivers in the business, where are they performing well, where are they struggling, where are the opportunities? And this really helps me with the analysis.

But the analysis skills then lead into skill number three, which is forecasting Knowing how to build a forecast, and I mean a rolling forecast. I'm not talking about a budget where you're trying to define where the company's going to be January through December in order to create this performance contract, where you say, okay, if you get these numbers, I'm going to give you this little prize. I'm not talking about budgeting. Budgeting is a whole nother topic that I'm not a big fan of. Instead, I'm all about forecasting looking at things month over month on an ongoing rolling basis, from revenue down the profit, but not stopping at profit, getting down to free cashflow, which involves forecasting out the balance sheet and forecasting out the statement of retained earnings. So when you can forecast out the future performance of the business and tie this to the strategy of the company, oh my gosh, you are on a really good path because you'll know what's working, what's not working and where to make adjustments on an ongoing basis. So when you take your regular financial reporting, cadence the numbers that are coming from your regular reporting and you can plug them into your forecast, and then when you're reviewing the financials and you say, hey look, we're going to hire a business development manager and we're going to pay him 175 grand, you plug that into the forecast right away, you can see the immediate impact to free cashflow. All right. So being able to build that forecast out based on the historical trends and the drivers and the KPIs is super valuable. That's skill number three. All right, we're not done yet, because skill number four involves taking this forecast.

See all of these things build upon each other. You take these forecasts and then you build a valuation model. And you could build a valuation model by taking the income approach, for example, building out a discounted cash flow model, or you could do the multiples approach, or you could do like an asset-based approach. Whatever valuation approach you want to use, you could do all three. Oftentimes I'll do all three and I'll just compare those approaches together. But ultimately you want to understand the valuation of the business as is how it's currently performing, and then you want to build another valuation model to show the optimized value of the business and then in between, you'll see the upside.

So having the skill is really critical, because I'll do this with businesses. I'll say, okay, look, here's your, as is value. It's $3 million. If you make these tweaks, you improve your margin, you drive your revenue, you improve your working capital, then it'll be $9 million, right? So there's a $6 million upside and even if we get it halfway correct, you know it's still, you know, $3 million of upside. So why not go down this path? Right? That's the value. That's how I tie strategy and finance in, together with everything which leads to skill number five, which is strategy.

Understanding how to build a strategy, specifically, how to take a blueprint where you're defining your purpose, your principles, your strategic problem, you're laying out your strategic options, you're choosing one of those, you're putting in place a strategic statement and then you're defining KPIs in order to measure operational and financial performance, and then you put in place IARs initiatives, actions and results to actually drive performance. When you do all this, you're going to make better strategic decisions for the company that are actually going to result in value creation. I've seen so many bad strategies out there, or I see people confuse strategy. They believe mission, vision and values is strategy, but that's not strategy. All right, strategy is about defining where you're going to compete, how you're going to compete and how you're going to win and, ultimately, how you're going to drive value, and you do that by combining strategy and finance together. Right?

If you want to learn how to build a strategy blueprint, you can do it for free. You could go to cultivarcom right now and on the website, you could take the course for free. You don't even have to sign up for anything. Just click and start watching. I provide this for you because I want you to get to a million dollars in profitability for your business and then grow from there, if you aren't already there. So that's a great free resource for you if you wanna learn more about strategy.

But these are the five skills I wish I would've had early on in business. And here's the cool thing Since I'm so passionate about this, I just launched an app. So if you go to byfiqcom, you can sign up for our app for free and guess what? You can start learning for free. I provide you with a starter course at no cost, no gimmicks, just sign up, download the app. You can learn this on the go from any device, anywhere, anytime. It's super convenient. So be sure to check that out if you want to start developing these five skills. But anyways, I thought I'd share this with you because it may provide you with a framework to follow to tackle one, two, three, four, five, to become a powerhouse in the world of finance. All right, I wish you all the best, be sure to share and subscribe and until next time, take care of yourself. Cheers.