One of the Best Ways to Enable Future Career Success: Understand Your Company’s Financial Results

As the president of New York Life Insurance Company, I saw many young people, and even high-level executives, place self-imposed limits on their advancement because they paid little or no attention to their companies’ financial results. Nor did they appropriately consider the financial impact of their decisions.

The Biggest Career Blocker

Later, as I thought about my New York Life experience, I asked myself, “What is the biggest career blocker and deficiency among employees at all levels?”

The answer came to me quickly: they simply don’t understand or appreciate the importance of financial results. Too often, people focus solely on top-line sales and revenue growth, almost to the exclusion of balancing a budget and achieving a strong bottom line or profit. Even worse, too many executives can’t even read a financial statement, much less manage to one.

Focus on Top-Line and Bottom-Line Growth Simultaneously

The term top-line typically refers to a company’s revenues, which are largely generated by sales of the company’s products and services for the accounting period. The term bottom line refers to the company’s net profits for the same accounting period.

In my experience as a president of a Fortune 100 company and as a director of several for-profit corporations, I have observed that most executives aspire to run a business. They often say, “I want to manage a P&L” (a profit-and-loss statement).” They even vigorously campaign for such opportunities within their organizations.

The primary reason many never get the opportunity (or worse, fail when they do get the opportunity) is that they don’t recognize this simple fact: the key to success in business and in career advancement is not in achieving strong top-line growth or strong bottom-line growth, but rather in accomplishing both simultaneously. This is equally true whether you are working for a large public corporation, for a small business, or in a burgeoning entrepreneurial venture.

In many businesses, it’s easy to achieve impressive top-line growth if you’re not concerned with the bottom line—just undercut the competition in pricing and overpay distributors. Doing so can produce dramatic sales growth, but at the expense of the bottom line. That’s not a sustainable proposition.

Conversely, it is relatively easy in the short run to achieve strong bottom-line growth if you’re not concerned about top-line growth—just cut costs significantly while underpaying and overworking your employees and ignoring the quality of customer service. Such a strategy almost always leads to business failures, despite short-term bottom-line profits.

I have encountered top executives making seven-figure incomes who couldn’t successfully run a business. Why? Because they focused almost exclusively on top-line revenue growth but either ignored, or didn’t understand, the bottom-line profit impacts of their decisions.

How you can gain a fundamental understanding of your company’s financial results.

If you do not understand your company’s balance sheet and income statement, don’t worry—you don’t need to pursue an MBA in finance or take a series of courses in accounting. Even someone who has no such educational background can gain a rudimentary knowledge of the key elements of both the balance sheet and the income statement.

Simply seek out someone from the Finance or Accounting Department at your company who is willing to spend a little time with you to provide a high-level understanding of the financial reports. You don’t need to understand how all the detailed accounting entries are recorded, or even what every line item in the full income statement or balance sheet means. It’s sufficient to know how the income statement is constructed and how it flows into the balance sheet during each accounting period. In a few short meetings, you most certainly will be able to become familiar with the essential elements of the financial statements of your company.

Once you have developed that rudimentary knowledge, here’s a two-part strategy that will distinguish you from most other employees—and even from many senior officers in the company:

1. Develop a spreadsheet that tracks (on a quarterly basis) the three highest-level summary numbers from the income statement (Revenues, Expenses, and Net Profit/Loss) and three from the balance sheet (Assets, Liabilities, and Net Equity). If you just do that much and watch the changes from quarter to quarter, you will probably be in a small minority of employees who are familiar with those results and how they are changing over time.

Updating that sheet with six new numbers every quarter won’t take you more than a minute or two, but it might be the best investment of time you’ll ever make in your career.

2. Once you gain comfort and confidence with the quarterly results, expand your understanding by going back to the person in Accounting to ask the killer question: “What drives the profitability of our business?”

You will probably shock your contact in the Accounting Department. My bet is, the initial answer will be something like, “I’ll have to get back to you on that.”

Later, you can expand your knowledge into a more granular understanding by asking for breakouts of the key drivers, by business unit. As you advance in the organization, it will become even more important for you to fully understand the drivers of future profitable growth. Identify and track these drivers early in your tenure at the company, and then continue to monitor them while your career flourishes.

As your knowledge increases and as your friend in the Accounting Department continues to answer future questions and enhance your business development, I wouldn’t be surprised if the CEO of your company, even if it’s a large company, will hear that you were asking such questions. I have great confidence in my statement that the CEO will hear about you because many young graduates have told me that it happened to them when they followed this simple advice.

As you advance in your career, don’t lose sight of the fact that every decision you make should be informed by its financial implications. Go back often to the important drivers identified in the answers to the killer question!