Are you a spender or a hoarder?

Do you shun money like a monk or spend inordinate amounts of time fixated on it?

Your business is a reflection of you, the owner. Your attitude about money forms the financial foundation of your company.

There is so much truth to be found in your financial statements, yet most owners don’t realize this truth because they have never explored their attitude toward money.

Consider how you hold money. Are you tight with it, or loose?  Do you spend carelessly or quite carefully? What is most important to you when you make a purchase: prestige, value, or price? Do you like a nice cash cushion in the bank, or  do you prefer to use that extra cash to grow your business faster?  Or, do you simply wish that you could get to the point where either one of those choices were available to you?

You are not likely to consider questions like these unless you have a coach, attend an honest seminar on money, or have an especially brave accountant.

However, as a business owner, you should be asking yourself these questions.

Understanding Is Foundational

Recently, my client Dave, an IT consultant, confessed that he had no financial systems except to bill for his work and collect on his invoices.

“If you were flying from San Francisco to New York,” I asked him, “would you rather the pilot have a full instrument panel with all the relevant data, or  just a couple of simple gauges?”

“So you see me like a pilot flying without any gauges?” He asked.

“Yes Dave,” I said, “that’s pretty much how I see it. It can be a treacherous journey if you don’t have strong financial systems in place to be certain you’re pricing correctly, making a profit, and able to plan ahead enough to make mid-course corrections.”

“But I just don’t get how to put it all together,” he complained.

Lack of understanding is the typical excuse. Don’t buy into it.

It is completely within your grasp to understand basic accounting and have enough financial acumen to run your business.

But first, examine your attitudes. Remember?

If you think it’s going to be hard, then it is likely to live up to your expectations. It’s not so very difficult.  Seek out the basic foundational understanding through books, on-line courses, or seminars. Talk to your accountant. See if there is a savvy financial resource on your staff.

Admit what you don’t know, learn it, and then start putting that understanding into practice.

Routine is King

Regardless of who performs the tactical part of financial management, the numbers have to be input accurately.

Most small business owners probably begin by trying to keep their own books or having someone close to them do it.  This is not necessarily a bad thing, but as you grow you’ll need to start delegating the bookkeeping and working with your bookkeeper to generate regular financial reports.

Then, dedicate some time every month to review those financial reports in your role as the Chief Financial Officer (CFO).

Routine is crucial. Do this every month.  Hold it sacred. Make it a habit.

Sit with your completed Income Statement, Balance Sheet and Cash Statement.

I can guess your next question: “What do I do with them?”

The simple answer is to go line by line and ask yourself what each one means. Every number tells a story and every line on your financial reports relates to something that happens in your business. Make it your business to make the connection and know what they mean.

Get yourself a basic glossary of financial and accounting terms and keep it at your side.  Gross Profit?  Net Revenue?  Owner’s Equity?  Variable Expenses? EBITA?  Look it up. Then, when you’ve forgotten – look it up again!

Make an appointment with your accountant, or sit with your bookkeeper, and ask them to clarify the terms and walk you through each line item.

For the first few months, do nothing else but look at the numbers and get familiar with them. Line up four or five months in order and notice what may have changed from month to month. What’s the story behind that change? Ask yourself: “What was the decision I made that caused that to happen?”

Familiarity through repeated, regular exposure brings increased comfort and confidence.

Don’t Settle for the Rear View Mirror

You wouldn’t drive from Boston to Los Angeles looking only in the rear view mirror. You rely on the view through the windshield. The business equivalent is your Budget and Cash Plan.

After three to six months of faithfully meeting with yourself as CFO, you will be ready to start this truly exciting and powerful part of money management: proactive planning.

If you feel you should somehow get a free pass on these, check your attitude towards money again. Every single successful business has these forward-looking financial systems in place.

Deeper Flows of Systemic Fortune

So, now you are routinely reviewing your key financial reports, budgeting regularly, and are on top of your cash.

This is the time to dig deep within your financial “intelligence reports” and see if there are any veins of cash not being properly utilized or expenses you can reduce.

Once your controls are in place and you are forecasting the future, it’s the perfect time to start exploring how your money center systemically connects with your marketing and management centers.

It’s in the confluence of these three strategic centers that you discover the new opportunities to bring more value to your customers and increase cultural and operational efficiencies that further satisfy those customers.

But for any of that to occur, you truly must have your fingers on the pulse of your financial controls and indicators.

There is no excuse for not having great financial systems in your business.

You can do this. It’s much easier and less painful than you may believe.

And please share with us your own experience of overcoming your resistance to“knowing the numbers.”