Leading Human Ecosystems

This Practice Note, together with Introduction to business finance and accounting—management accounting and internal decision-making, aims to help you understand your organisation through its financial language and methods. It is intended for in-house lawyers working in private sector, commercial organisations. Not-for-profit, third-sector organisations and government bodies operate with specialised financial governance principles and are not covered in this Practice Note.This Practice Note covers:•why financial literacy is important for in-house lawyers•the difference between financial accounting and management accounting•the core financial statements—the balance sheet, income statement and cashflow statement•how to assess financial health•how the market values businesses•the working capital cycleSee Practice Note: Introduction to business finance and accounting—management accounting and internal decision-making for guidance on financial decision-making tools and budgeting.See also Checklists: How financially literate are you and Improving your financial literacy, which offer a series of questions and practical actions to help you assess and improve your financial literacy.The language of financeManagement

This Practice Note, together with Introduction to business finance and accounting—financial accounting and external performance, aims to help you understand your organisation through its financial language and methods. This Practice Note covers:•the difference between fixed and variable costs•how investments are appraised by the business•budgetingSee Practice Note: Introduction to business finance and accounting—financial accounting and external performance for guidance on financial accounting—the core financial statements, how to assess financial health, how markets value companies, and working capital.See also Checklists: How financially literate are you and Improving your financial literacy, which offer a series of questions and practical actions to help you assess and improve your financial literacy.Cost behaviourNot all business costs behave the same way:•some costs are fixed, meaning they don’t change with volume, eg rent•some are variable, meaning they change directly with volume, eg the materials used to make each productThis distinction matters because it determines how profit changes as volume

This Checklist is intended for in-house lawyers. It is designed to help you assess your understanding of the key finance and accounting concepts you are likely to encounter in your day-to-day work, and how these apply to the business. It should be used to identify gaps in understanding (both technical and as applied to the business) and to prioritise what to focus on next in order to contribute more effectively to commercial discussions.Use this Checklist to assess your current comfort level. Be honest—this will help you identify where to place your focus in developing your understanding. Some questions target awareness of the concepts, others how you’ve applied this knowledge practically. Use both to target your development.If several of these feel uncomfortable, that’s normal and fixable. See Practice Notes: Introduction to business finance and accounting—financial accounting and external performance and Introduction to business finance and accounting—management accounting and internal decision-making for guidance on the essentials of business finance and accounting, and why this matters for in-house lawyers.See: Improving your financial

This Checklist is intended for in-house lawyers. It suggests role-based practical actions to improve your understanding of how key finance and accounting concepts apply to the business. These suggested actions are designed to increase your financial awareness and improve confidence in contributing to commercial discussions.In the context of this Checklist:•an individual contributor means an in-house lawyer who does not manage a team or function•a functional or people manager means an in-house lawyer with responsibility for leading a team or managing part of the legal function•an enterprise leader means a senior legal leader who operates at organisational level, engaging directly with the executive team and the boardTo assess your current financial literacy, see: How financially literate are you—checklist.For guidance on the essentials of business finance and accounting, and why this matters for in-house lawyers, see Practice Notes:•Introduction to business finance and accounting—financial accounting and external performance, and•Introduction to business finance and accounting—management accounting and internal decision-making Individual contributorActionGuidance□