Most business owners have a lack financial understanding of their businesses and so leave their financial future to chance.
Some business owners have a fear of numbers. Some are overwhelmed. Most feel intimidated or embarrassed to admit that they don’t know what they’re looking for when they review financial documents.
Fortunately, you’re reading this now.
The good news is you do not need to know everything about accounting in order to define and strategically manage your financial data.
The truth is, you only have to be proficient in understanding 20% of the financial information that you generate, and informed enough to know who to go to for the other 80%.
With the right resources and mindset, you can dramatically transform the financial performance of your business, and increase your feeling of control and confidence in this area.
Let’s Define the Roles
As CEO you are responsible for the success or failure of your business.
For you to be fully successful at that, you must build a financial team around you, and leverage the information provided by the rest of the team.
Your team includes:
- A CFO
- A Controller
- A Bookkeeper
- An Accountant (SAIPA/SAIBA/ACCA)
A CFO advises the CEO on trends that may impact the business, supports you in analyzing financial reports, and helps to establish and monitor the systems used by your accounting department.
A Controller oversees the personnel in your accounting department, prepares reports, and makes recommendations to improve the financial outlook of the company.
The bookkeeper is the technician on your team handling the day-to-day tasks of organizing and inputting data.
The Accountant’s main role is to advise you on tax-related matters.
This is a typical structure of a larger entity and with the vast changes to the expectancies from accountants in South Africa, for most of you, all four roles can be provided by a highly proficient accounting firm.
Is This a Business or a Hobby?
Are you using an Accountant?
If so, are they analyzing your income statements for you?
If your answer is no to either of these questions, you are missing a key player on your financial team. You’re also missing tools that are vital to the control of your financial future.
The key to being motivated to shape your financial systems is to think about what you really want in return for the time you’re investing. It is critical to acknowledge whether you have a hobby or a business.
If your answer is authentically a business, then you need to begin to think about it differently.
If you have been avoiding responsible, comprehensive financial management and burying your head in the sand, there is no better time to adopt a new, healthy attitude towards it, and resolve to take action.
If you want your business to give you more life, and are committed to fulfilling your financial goals and taking control of your financial health, then making this shift is essential.
The Essential Steps
- Be open and curious about how your financials and your business activities are connected. Every decision and action you take shows up somewhere on your financial reports. Understanding what is underneath those numbers will allow you to have increased clarity and make better strategic decisions.
- Have a financial team around you that provides support, direction, and recommendations. Each position brings a different viewpoint, and it may take some time to put it together, but don’t wait to start. They do not have to be full time staff. Start with your CPA because they might be able to provide additional resources or give you suggestions as to where you can find the rest of your team.
- Regularly review and analyze your income statements and balance sheets. Your financial team can play an important part with this. This review needs to be done monthly. Being consistent is critical; repeated, regular, disciplined exposure will increasingly alert you to trends and anomalies, and progressively increase your “financial intelligence” and comfort level.
- Establish a budget and a system for using it. It does not have to be complicated. Determine when during the month you will review your budget and the variances between your plan and what actually occurred. Your budget is a plan to make you profitable and you can – and should – adjust it periodically to reflect the shifting realities of your business activities.
- Set up a way to track and manage your cash and make it a routine. Generally speaking, you need to have 2 – 3 months of expenses set up as a cash reserve. Even if you can only put a little away at a time, do it because it will add up quickly. Cash management is about knowing what you have now, what is due to come in, and what is due to go out. It seems simple because it is!
- Use accounting software. Simply relying on your checkbook, bank statements or spreadsheets is just not comprehensive enough. Although we don’t endorse any specific software, make sure it includes the ability to run income statements, and balance sheets, create and manage budgets, and has the ability to track and manage cash flow. It should also be able to provide variance reports for your budget and cash flow. ThriveCFO will be able to advise on the best solution to your circumstances if you haven’t already got this covered.
If you acknowledge what is in your way of being fully accountable for your own financial health, set up a team around you, and follow these 6 guidelines, you will begin to develop a financial management system that will direct you on the path to building and having a healthy and thriving company.
If you choose to keep doing what is not working or continue to avoid what is, in fact, your responsibility as CEO, then be prepared to forever ask yourself why there is so much month left at the end of the money.
