The owner of a small business cornered me at an event. He has an idea that he believes will generate millions. He wanted my thoughts.

He told me his plan. It seemed interesting. It could flood his business with new customers.

So far, so good.

But then he began to talk numbers. Two numbers in, a giant black hole appeared where profit should be.

Now it sounded like a business-killing idea. One that would multiply his customer base and increase his costs without adding (and likely eroding) his bottom line.

But I’m unfamiliar with his industry, I might be overlooking something. I asked him what his typical margins were. I figured we could compare his current performance with projected performance. Maybe that would help bring clarity.

“I don’t know. I’m a big picture guy.”

“My guy (I presume he meant his accountant) says I should know about the numbers.”

His guy is right.

Vision doesn’t pay the bills.

I don’t like math. 

I’m not a numbers guy. I don’t have the wiring to be an accountant or CFO. But I know that the heart of every thriving business is the well-oiled machinery of healthy financial management.

If “heart” seems like an overstatement, it is at least the liver or lungs. Pick your favorite vital organ.

That’s why I’m writing this article. Too many businesses (and non-profits and governments) run into problems they should have been able to avoid.

Many leaders don’t pay adequate attention to the numbers. There are all kinds of stated reasons. None of them are good enough.

As I write this, I’m waiting for a flight. I’m counting on the fact that the pilots will pay attention to their numbers: Airspeed, elevation, air pressure, navigation, etc. They are important. They are no less important in your business.

Basic financial management starts with simply keeping track of what is happening financially. Seems obvious. But many businesses struggle to do even that. This is what my business owner friend needs to do.

However, keeping track is elementary. That’s like learning to read. But just being able to read doesn’t mean you do read. And reading doesn’t mean you are learning or applying.

As a leader, you need to be numerically literate. You need to provide financial leadership. Even if you aren’t a numbers person.

Understanding the numbers relevant to your business allows leaders to strike a balance between innovation and caution, risk and restraint. You don’t have to be an expert. You don’t need to become an accountant. But you need a basic understanding.

Numbers, especially financial numbers, help leaders understand and navigate their actual landscape. Not just the one they hope for. Or the one they fear.

I’m just putting two financial topics on your radar. I won’t go into depth around them. But I’m being “your guy” right now, saying you need to learn about these things.

There are three primary ways to learn:

• Study up: Books, classes, etc. Many great resources teach these basic concepts. You are not trying to become an accountant. You are just trying to learn enough to have a working understanding of the topics. Enough to ask good questions, talk to the experts, and notice when things seem weird.

• Talk to your accountant: Ask them to explain these topics and how they should apply to your situation. But many accountants will be unprepared to answer that question. They know how to keep books in order and how to keep the IRS happy. But they won’t understand organizational needs. If you feel like your accountant isn’t able to answer the questions in a way that you understand or can use see the next option.

• Hire a CFO: Bring in an expert who can provide a strategic and systems perspective to your finances. Specifically, someone who has the ability and patience to teach you as well. For companies under, say $30M in revenue, a fractional CFO will be fine. This is a CFO who essentially consults you “part-time.”

Again, you don’t need to learn accounting. But you do need to learn to talk to your accountants and read the numbers they provide.

One of the biggest reasons leaders struggle to get to the next level is being unable to do the math.

Learn the math. It’s not that hard. And it pays well.

Lest you think I’m only referring to small businesses. Consider this: Silicon Valley Bank, Signature Bank, First Republic Bank. These banks were governed, run by, and served the best and brightest. They weren’t paying attention to the numbers either. 

Take good care,

Christian

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