Few directors are financial experts, but all directors have to make judgements on the financial figures presented to them in the boardroom. To do that, you need some financial knowledge and a lot of business knowledge.
Here’s some of the things you might want to consider.
- Do these financial results reflect how I think the business is going? For example, trading has been difficult and yet we are reporting a huge profit. You need to ask Why.
- What do the auditors think about the numbers? There are many, many assumptions that go into a set of accounts. Ask the auditors about the general tone – are all the assumptions at the optimistic end of the spectrum? Is this justified?
- How much cash do we have, and how long will that last us if things start going wrong? This is a very important point to consider.
- Are the executives answering all my questions in a way that makes sense to me? If not, how can I ask this again to get a better answer?
Your role as a board member gives you responsibility for financial decisions, so it makes sense for you to think in advance about how you will evaluate them and be prepared.
Our work in this area at Cranfield is one of the areas explored within the Finance for the Boardroom programme - one of our specialist programmes designed to develop appropriate skills for non-financial professionals and frameworks to successfully improve financial performance and shareholder value in your organisation.
Blog produced by: Dr Ruth Bender, Emeritus Professor of Corporate Financial Strategy and Programme Director of Finance for the Boardroom, Cranfield School of Management
