In this blog post, I discuss the importance of financial literacy for procurement professionals and how it goes beyond just managing prices and budgets. Understanding the bigger financial picture enables procurement teams to make strategic decisions, communicate effectively with finance leaders, and demonstrate the impact of their work on costs and profitability. Improving financial literacy helps bridge the gap between procurement and overall organisational success. Over the coming months, I'll be sharing insights and resources that help me and could help others develop their understanding of this critical skill. Stay tuned.
Introduction
I've been with Insider Pro for nearly three years now, and during that time my ability to undertake certain tasks has developed, but one area I still feel lacks proficiency is my financial literacy. We have ex-chartered accountants in the team, and whilst I am not striving to become a fully fledged accountant, I realise the importance of being able to understand the bigger financial picture behind the impactful work we are undertaking. 'Procurement' is traditionally thought of as being about prices, budgets and savings figures, but procurement teams play a critical role in any organisation's financial health, so ensuring that these individuals are in touch with the impact their work has is crucial to the success of any organisation.
How do I become more literate?
To further my own understanding, I recently undertook a short introductory course on 'Companies and Financial Accounting' by the Open University. Whilst you may be familiar with much of the content, I felt it was extremely useful to refresh on the basics of accounting and the different formats of accounts for different types of company. There are two further courses I am planning to complete: Challenges in Advanced Management Accounting, and Fundamentals of Accounting.
For procurement teams, there are additional considerations beyond just price, such as:
- Are VAT implications being considered for purchases?
- Do you know whether a high-value equipment purchase should be treated as capital expenditure? Do you understand the difference between CapEx and OpEx?
- Would you feel comfortable reading a profit and loss statement to identify where your decisions are impacting costs and any associated margins?
Building financial literacy will enable you to:
- Promote the value of your organisation through strategic decisions that focus on improved profitability or efficiency.
- Work seamlessly with finance teams and senior leadership by communicating with confidence.
- Make decisions that are supported by demonstrable, quantifiable savings that have a clear impact on costs.
My plan over the next few months, whilst developing my own understanding of financial literacy, is to write a series of blog posts which will hopefully act as a resource for anyone else looking to improve their own. Stay tuned.