No sugar coating, let’s start with tough talk
A study of 2,500 entrepreneurial companies, conducted by Xero, found that 65 percent of business failures are due to financial mismanagement.
Financial knowledge and accountability is a critical responsibility of every startup founder for success. Yet when it comes to financial matters, too many entrepreneurs make erroneous assumptions about the scope and value of bookkeeping and accounting services to deflect a lack of willingness to be financially responsible at the appropriate level. They attempt to pass the buck. This is always a mistake. The buck stops with you. It is not your bookkeeper’s responsibility to know the expense structure, gross margins, recent marketing spend or monthly payroll of your company. They handle the financial administration. It is not your business consultant’s or accountant’s responsibility to know the potential return on a new product or service or to predict when your new business may be profitable for the first time. It is not your CFO’s job to hold full responsibility for knowing the company’s financial strength for investing in growth endeavors. It is yours.
You might think this is tough talk, but know that no one is good at everything and every entrepreneur must look at his or her business with a skillful mindset and own it all.
A core trait for entrepreneurial success is to continuously learn as you go.
You must grow an appropriate skill level in every area of business for success; not just the areas where your innate talents live. I think about the 65 percent of business failures that may have had an amazing idea and the opportunity for success but squandered it because they would not focus on the importance of financial knowledge and skill. Opportunity for someone else who does the hard work to grow these valuable skills, I suppose. Now that’s survival of the fittest at its finest.
Proof of the importance of financial skills
I have watched far too many small business owners let opportunity pass them by, because they did not embrace the importance of focusing on the financials.
I once sat next to a successful small business owner at a conference presentation entitled, “How to Put Your Financial Statements to Work for Business Success.” The core focus was on how to analyze your financial data effectively for growth in revenue and profit. It was well presented, not terribly sophisticated, and I found it a very meaningful presentation. My friend turned to me with a frustrated look on her face and said, “Do you find this presenter valuable? I don’t. Her presentation is far too sophisticated for this audience of small business owners, and this is a waste of my time.” I thought to myself, “I wonder how much faster she could be growing both her top and bottom line if she prioritized growing her financial knowledge?”
This issue is pervasive at every stage of business. When equity investment brings life to a startup, it often feels euphoric and can create the perception that all you need is money for your plans to take off with unparalleled success. Without strong priority on financial skills to shepherd what feels like an endless pot of gold, too many startups go under, taking their investors’ hopes and money with them.
The Michigan Women’s Foundation opened a $2 million fund for the sole purpose of providing financial capital to women entrepreneurs. They found that only 10 percent of the applicants had the financial knowledge and skill to complete the application process.
How to grow your financial skills and financial capital
If you feel like you are the only entrepreneur struggling to tackle the issues surrounding financial capital, please know that this is completely false. This struggle is present for every business owner, particularly at the startup level. If you are not self-funding, it is absolutely necessary to have the skills to understand financing options so that you can navigate the process for obtaining debt or equity financing successfully. If you are self-funding, these skills are paramount for generating growth from profit successfully. So how do you go about taking the right steps for growing financial skills and knowledge for a lifetime?
Here are three high-level strategies that will take you down the right path.
- Get self-aware. Recognizing and owning the idea that your company needs for you to grow financial skills and that they are paramount for business success. Even if you have an MBA, finance may not be your strength and you must continue to build upon the foundation provided by your education. Although I have an MBA and I am a co-founder of a payroll and tax company, I am not a financial guru. These skills are not among my innate talents, really. Awareness of the benefit I would bring to my company if I continuously pushed myself to grow these skills has been powerful. From building a meaningful chart of accounts at startup to analyzing financial statements to estimating risk, return on investment and growth, and on and on.
- Commit to skill growth. Growing your financial skills should be a career-long focus and journey. This quest does not need to result in “expert status.” Founders must smartly choose where they spend their time, and there is always so much to be done and so little time. However, continued learning at the appropriate level will always enhance success. If your financial skills are above average, make it a priority to gain knowledge through reading or attending periodic seminars. If your skills are average, make a list of your blind spots and focus on learning more in these areas. If you are a novice, embrace that starting at the beginning is OK. It’s far better than not starting at all. I am a fan of the Dummies series, and there are many books on the basics of finance and accounting. You will be a much better partner to your bookkeeper and will produce meaningful financial statements for analysis by taking a basic online class by Xero or Quickbooks. And for all levels, if you don’t have a business plan or don’t have one that guides the company, learn how to build and use a business plan.
- Fill the gaps with experts. As I said, you can’t know it all. If finance is not your expertise, gaining a working knowledge and supplementing smartly with experts will not only fill the gaps, but they can assist in your commitment to growth.
Getting comfortable enough to eliminate fear over money is paramount to success. And the success of your business depends on it. When there is success in the financing, growth and financial management of a business, confidence is grown in your ability to take your business everywhere it is capable of going.