Finance is a pivotal part of every business. But even if you're not interested in learning about financial markets, understanding financial principles should be among your priorities.
As a business student and future business professional, you can expect to become well-acquainted with financial planning concepts. You might even work with personal financial advisors for your own financial health. You are unlikely to ever regret learning more about financial institutions and the way the whole finance industry works. It's relevant to everything.
Every leader within an organization considers their department essential for keeping the company in business. But the finance department is truly pivotal to success. Starting a business, keeping the doors open and supporting a growing company all require financial management.
Everything in this world costs money, and this is true for businesses as well.
If you’re still thinking, “Okay, but I’m not pursuing a Finance degree, so why study finance?” Just keep reading, and you’ll find out everything you need to know!
Here are 3 irrefutable reasons why every business student should study finance
1. Managers need to review financial reports to achieve company goals
The responsibilities of corporate leadership are not limited to managing people and processes. Leaders are primarily accountable for their companies’ profitability. As a result, they spend a significant part of their days analyzing financial reports.
If you don't have a finance degree, making these reports useful is still a critical part of your path into business leadership.
Internal managers are responsible for increasing revenues and lowering expenses. They continuously look for ways to increase their companies’ sales and reduce expenses. Methods for cutting costs can include...
- Negotiating better pricing from vendors
- Limiting office supplies for employees
- Scaling down company perks (eliminating free coffee or decreasing employee discount percentages)
- Effective risk management
- Investment management
- And more
Why good managers need financial knowledge
Let's say Nixon is the operations manager for a logistics company. When he arrives to work each morning, he greets his team members, then goes into his office to review the daily sales reports.
First, he filters the reports to show the company’s daily, weekly, monthly, quarterly and yearly sales numbers. Next, he takes time to analyze the reports and compare actual performance to the company’s expected sales numbers.
This analysis allows Nixon to determine which areas of the business his team needs to focus on to exceed their goals. During this process, he discovers that the team is still $10,000 away from meeting this week’s sales goal.
Nixon gathers his team for their morning meeting and reviews the sales reports together with them. He explains that they currently need an additional $10,000 in sales to reach their goal.
As an inclusive leader, Nixon asks his team to share their suggestions for increasing the week’s sales. Because his team members are on the front lines every day, Nixon knows they understand best how to make the goal achievable.
Since the team only has a few days left to meet their target, Nixon also decides to offer them an incentive. If the team meets their goal, he will give each of them a $50 gift card.
It’s common for leaders to provide incentives and rewards to their team members, so Nixon already budgeted funds to help cover the cost of the gift cards. But if he had not been managing his budget effectively, he may not have been able to incentivize his team.
Of course, budgeting isn’t a natural ability we’re all born with. So, how did Nixon figure out how to keep his department running so smoothly?
He completed a finance course as part of his management degree program. The course helped him understand how to adequately manage a department's budget. It also prepared him for analyzing financial statements and comprehending how his department’s goals contribute to the company’s overall, long-term financial success.
2. Leaders educate their teams about how each role influences profitability
Every team member should be aware of their team’s current performance and how the company is performing as a whole.
Most companies hold quarterly meetings to discuss their finances. During these meetings, leadership teams measure actual performance against earlier projections. Typically, they will show a breakdown of performance by department, so employees can see how their teams contribute to the entire business.
After college, when I started working in the corporate world, these meetings helped me to learn more about financial statements and how to analyze them in my new management role.
For individual team members, these meetings can help put everything into perspective. Employees learn how their day-to-day tasks play a role in the company’s financial health and success. This type of understanding usually comes from managers and business leaders, not from finance professionals or financial advisors.
Sometimes, team members feel like their superiors create tasks just to keep employees busy. They may not realize how each hour of productivity directly correlates to each department’s goals.
Since one underperforming department alone can impact the entire company, business leaders who understand finance well enough to educate their employees can make a huge difference in the health of a company.
Why understanding the financial position matters
Let's say Tamika is a sales representative for a logistics company. She has a goal to secure a specific number of new clients each week. So, Tamika sets hourly and daily goals for herself to collect sales leads. Generating new leads and creating a sales pipeline can help her reach her larger goal.
She calculates how many sales calls she will need to make per hour. From there, Tamika can figure out the total number of calls to make during each 8-hour shift. These calls should result in several new leads that are interested in the logistics services.
Once Tamika and her teammates all reach their sales goals, the department will have met its goals. Still, if Tamika does not meet her sales goal, but her teammate, Cory, exceeds his goal, then Cory’s performance offsets Tamika’s, and the team meets its target.
3. Managers from every department are responsible for budgets
From HR to sales and marketing, team leaders all throughout an organization are responsible for managing funds efficiently. Budgeting (and fitting the budget into the company's larger picture) is not just for the professionals with a finance degree.
Each department’s budget also fluctuates yearly as the company’s goals and needs change, making a background understanding of finance pretty important.
For example, the human resources department budgets for costs associated with recruiting, onboarding, training, benefits, etc. If the company downsizes, then the HR budget decreases accordingly. Conversely, if the company expands, the HR budget increases to fulfill staffing and training needs.
Therefore, HR managers must understand financial planning, which is why students in HR degree programs study finance.
Here are some specific ways finance can help each area of business.
Why study finance if you’re interested in human resources?
HR managers help companies reach their financial goals.
Workforce planning requires HR managers to account for a variety of expenses. They gather quotes from vendors that offer applicant tracking systems, job posting packages and background check services, for instance. Most companies have moved away from paper applications, so having a robust applicant tracking system is important.
Of course, as technology continues to advance, HR expenses will also change.
For example, I held a role as a corporate recruiter, years ago. At the time, there were only a few job posting websites. Now, there are plenty more sites recruiters can use to share job postings. Plus, companies can connect with job-seekers at no cost through social media platforms.
HR teams assist other departments in important financial decisions
Lets say a sales department manager, Rick, has received a new sales goal from his superiors. To meet this new goal, Rick will need to hire more sales representatives.
He’s been given a budget to cover the cost of hiring five new sales reps. Rick sends a requisition to the HR manager to post an opening for these positions and schedule interviews.
The HR manager must then utilize part of the HR department’s recruiting budget to assist Rick. These funds will account for publishing the job posting, reviewing resumes, prescreening candidates and scheduling interviews.
No wonder students in HR programs study finance!
Why study finance if you’re pursuing a Marketing degree?
A company’s marketing operations have a massive impact on its financial future.
You probably wouldn’t compare marketing experts to financial professionals, but financial literacy is equally important in both fields. Being able to execute a strategic marketing plan for a company requires a significant amount of funding and a thorough understanding of financial concepts.
Marketing departments are responsible for making wise investment decisions to help companies reach their target markets efficiently.
In the past, advertising was limited to radio, TV, print media and billboards. Now, with so much advertising taking place on the internet and social media networks, companies must further divide their budgets. You don't have to be an investment banker to make this happen, you just need a solid awareness of how to make the most out of a budget.
Marketing professionals apply their knowledge of market trends and finance principles to determine which outlets will likely yield the highest returns. In addition, marketing managers must be aware of advertising and sales trends that may affect their budgets.
Platforms like Instagram could increase their prices, for example, prompting marketing leaders to reconsider budget distribution. Or let’s say an ongoing marketing strategy isn’t yielding the desired results. Marketing managers might then decide to allocate part of their budget towards hiring a marketing consultant for help.
A company may also experience financial challenges that result in a decreased marketing budget. The marketing department would then need to pivot and find more cost-effective ways to meet their goals. (For example, a marketing manager could negotiate better contract pricing with vendors and/or implement grassroot efforts to manage social media content in-house.)
Why study finance if you want to run your own business?
Finance is essential for people who want to become entrepreneurs. Every business needs capital to get going, and most businesses fail because they run out of that capital. If you have an amazing business idea (or just want to work in a situation where you are your own boss), understanding how to plan ahead with your finances can be the difference between making it and going under.
For more on that, check out 4 Reasons a Finance Degree for Entrepreneurs Builds the Best Foundation.
Studying finance isn’t just for finance students
The world of corporate finance affects all of our professional lives. Every member of every organization therefore needs financial knowledge. From products to services and client relations, there is a cost associated with every aspect of business operations. Whether it’s the HR department, marketing or sales. A degree in finance is extremely useful and versatile. But even a few finance courses can help you navigate the business world, and even your own wealth management.
Every team member—from HR to marketing—needs to understand how their role contributes to the company’s overall financial performance.
The good news is that most business programs will have options for courses in finance. Make sure your path includes this foundation. The business world is full of interesting roles, and honestly, finance applies to all of them. You never know, maybe after your first course, you'll be more interested in a finance degree than you thought!
See how that might be as you look over some different business roles at The Beginner's Guide to Different Types of Business Degrees.
