By Dave Hickey
- What’s my break-even point?
- Can I afford to pay salaries this month?
- What margin should I be aiming for on this new product/service?
Many entrepreneurs and managers can’t answer questions like these because they haven’t yet acquired the necessary financial intelligence. Nobody gave them a test in finance skills when they decided to start their own business.
They just have to get on with it. But if they don’t learn quickly financial troubles build up and before you know it that investment they made or loan received is shrinking fast.
Financial Intelligence is not some innate ability that you either have or you don’t – it’s a set of skills that can be learned.
You probably didn’t start your business just so that you can work on the numbers. You may be a great salesperson or an inspired engineer. You may be terrific with customers as well as employees and your vision for the business is probably fantastic. But if you don’t know finance – as it impacts your business – you’re operating at a disadvantage compared to your competitors.
Roadblocks
I’m a recovering accountant and I’ve worked with enough start-ups and SME’s to know that while most people want to increase their financial intelligence, it’s not always easy. In my experience there are a few predictable obstacles:
“I’m no good with numbers”
Lots of clients say this. They hated maths at school or, if they were good at it, they didn’t get the concept of ‘double entry’ that accountants always use.
The good news is that the maths is relatively easy. It’s mostly addition and subtraction with the odd bit of percentages thrown in when finance people want to get fancy.
And double entry is taken care of by most accounting software to ensure that your accounts will balance and keep people like me happy. (Note that if you’re using a spreadsheet to manage your accounts, you’ll have to do this yourself.)
Profit isn’t your motivation
Your primary goal may be to support your community or provide excellent customer service or develop ground-breaking technology. That’s great.
But, unless you have a generous benefactor, if you don’t make a profit you won’t have a business at all. Profit can give you the resources you need to re-invest in the enterprise, employ more people or acquire new equipment.
If you have invested your own money or borrowed from someone else, you’ll need to make a profit to repay yourself or them. You or they could have invested in something else and earned a reasonable return. Profit is the equivalent of that return.
Don’t want to look stupid
You’re the boss after all. You feel you should know this stuff and others seem to expect that you do.
Acquiring some knowledge through training or reading will help you address this and enable you to ask intelligent questions of your finance team as well as decipher their answers.
Time
There’s enough to do in growing your business and managing all that involves. You simply don’t have the time.
This is probably the most common obstacle. It’s not a lack of will, it’s a lack of time.
There are many good books and courses on the topic which are aimed at you – the business leader. You don’t need ‘Accounting for Dummies’ but you do need a better understanding of what the accounts and accountants are telling you.
Technology can also help. There are lots of applications, such as Xero which can make collecting and analysing your financial data easier.
In addition, DHKN and other firms offer services which will harness this technology and they’ll add financial disciplines and expertise on your behalf, in effect becoming your own financial expert.
If you can overcome these obstacles you will have a health appreciation of the art of finance. Yes, despite all the numbers, there is an art to finance as well as discipline. You will be someone who is capable of understanding and assessing what your financial reports mean and how they fit in with other operational information.
Find out more about how DHKN can help you acquire better financial intelligence without you investing valuable time into the process – time you can use to grow your business, based on the solid financial intelligence provided to you.
Contact me at dhickey@dhkn.ie or on 087 6253657 to find out more.
