Talking to the uninitiated business owner about their numbers is often like putting a teaspoon of wasabi into their mouth. The facial expressions that follow look like extreme displeasure, disgust, confusion, and whatever other expression is going to give you another 10 years of premature ageing. I believe the reason for this kind of reaction is due mostly to a lack of understanding and a fear of numbers on the part of small and medium enterprise owners. ‘Don’t talk to me about it I don’t want to know!’ or ‘oh, how boring! I’m not a numbers type!’ are common comments when the subject of numbers is brought to their attention.
I get it. Numbers may not light you up. They might seem like a foreign language to you. But I guarantee you, when you discover how simple they can be, and how small changes to your business can yield significant improvements in your cash flow, you will get excited. The sad thing is if we looked at the typical small and medium business (SME) owner in Australia and around the world, the vast majority are grossly under-skilled in financial principles and adopt very few if any financial management processes in their business. They are basically winging it when it comes to their finances. I liken it to driving a car with the windscreen painted black. Would you do it?
It sure does seem like a crazy notion, how could it be as careless as that? If our public corporate captains were found guilty of such negligence, they would stand public scrutiny and a legal system that can put them in jail. Yet in the SME sector, it is common place. In my view, the accounting profession must take some responsibility for this, as they are primarily concerned about your tax obligations rather than educating you on the dynamics of numbers. I know this because I have personally worked in the accounting profession for 15 years, for small firms, large firms and on a self-employed basis. I know the industry well.
So here’s the thing. When you gain some perspective around numbers, you will see they are not as complex as you may previously have thought. When you see how the use of numbers affects your business, your financial situation need not be stressful, but something you actually look forward to as part of owning and running your business. It’s really just a mindset thing. Sure it takes time to develop any new skill. If you think about leadership in a broad sense, it includes an ongoing commitment to learning. Leadership in a financial context is taking responsibility for what you need to know about your business’s finances and learning the ropes. It can be done. I have seen many non-accountant qualified SME owners acquire financial skills and become financially savvy.
So let’s say you’re keen to develop your skills. Where do you start?
The good news is, financial principles are at their simplest when looking at the strategy level. At a financial strategy level, the three key areas of focus are your profitability, your cash flow and your overall financial position. I believe one of the biggest misunderstandings SME owners have is the difference between profitability and cash flow. The mix of these two items then affects the third major area - overall financial position.
When you get to know the difference, you will be able to grow your business confidently and with reduced risk. You will not have to suffer the stress of not understanding what is financially happening to your business. Not only will you not suffer stress, but you will be excited to see how your business is progressing against your goals and see what adjustments are required before the need arises. You will see how to maximise opportunities and deal with threatening situations.
So I urge you, from a leadership perspective, take responsibility for your business’s finances. Make a commitment to educating yourself. Put the necessary processes in place to drive your business from a financial perspective. Cash flow alone does not guarantee happiness, but it certainly creates ‘units of freedom’. How much freedom do you ultimately desire?
By Greg Smargiassi