X

Expert Advice for Medium and Midsize Businesses

Financial Intelligence for Business Owners

Oftentimes, in the infancy of a business, owners attempt to oversee everything themselves. They assume that as long as they have a good team behind them, they don’t need other positions, like a Chief Financial Officer (CFO). However, if the financial literacy of a business owner is lacking, it can significantly impact the growth of a business—and even close the company’s doors.

To learn how owners can enhance their financial intelligence to grow their business, Oracle SMB asked the Twitter community to weigh in during a recent Tweetchat. Continue reading to see the answers we received. 

Are most business owners today more financially literate when it comes to their companies?

No, we at the Business Literacy Institute did a national test on financial literacy of business leaders in companies with over 150 employees. The average score was 38% and that included finance and accounting. Since the test went out in 2009, we have trained thousands of executives from large public companies to small startups. We find that business people understand the income statement best. When it comes to balance sheet and cash flow, they struggle.
— Joe Knight (@JoeVKnight), Author of Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean

Cash flow is a business killer. It’s the fuel that drives our businesses. You don’t want to run out of gas along the way.
— Brian Moran (@BrianMoran), Award-winning Business Strategist

Being literate and reading are two separate things. Owners may be literate but may not be paying attention to their financials.
— Barbara Weltman (@BarbaraWeltman), Author of J.K. Lasser’s Small Business Taxes

What are some mistakes business owners make when it comes to the financials and financing?

Too much focus on the income statement, not enough understanding and focus on cash flow and the balance sheet. Often, business owners hire an accountant to do the books, then as the business grows, they have them do more—like negotiate a bank relationship and analyze the business. Most accountants are not good at these additional functions. As a business grows, you need an accountant and a financial analyst/CFO-type for banking, budgeting, forecasting and strategy.
— Joe Knight (@JoeVKnight), Author of Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean

CPAs can do the work but business owners must know the numbers.
— Brian Moran (@BrianMoran), Award-winning Business Strategist

Not fully evaluating cost versus investment, which then leads to poor quality decision making.
— Ali Davies (@Ali_Davies)

What do business owners REALLY need to know about the numbers?

Cash flow. Nothing teaches a business owner about cash flow like missing payroll. You can have lots of profit and still miss payroll if you don’t understand the difference between cash and profit. Most business owners try to drive sales up to increase business size, but it is profit and cash flow that makes a business valuable.
— Joe Knight (@JoeVKnight), Author of Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean

Nothing teaches a business owner about cash flow like riding an endless rollercoaster of peaks and troughs. Effective cash flow allows the business owner to step off the rollercoaster.
— Ali Davies (@Ali_Davies)

There’s a big difference between sales and cash flow. Don’t be fooled by great sales into thinking you have good cash flow.
— Barbara Weltman (@BarbaraWeltman), Author of J.K. Lasser’s Small Business Taxes

Do you have an opinion about Open Book Management (OBM)? Is it right for every business?

No. It’s right for every owner that is comfortable with sharing the books with their employees. It’s very personal. If a business owner is comfortable with OBM, then it is a powerful tool. It engages every employee. There are 3 keys to OBM: 1. Share the numbers at least monthly. 2. Share in the success through a bonus plan. 3. Train everyone on the 3-4 metrics that drive the business and share them. If you do OBM, you must do all 3.
— Joe Knight (@JoeVKnight), Author of Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean

For more financial insights from Joe Knight, read his latest blog post. For a complete recap of our #SMBExperts tweetchat, Financial Intelligence for Business Owners, view the Storify article.

Be the first to comment

Comments ( 0 )
Please enter your name.Please provide a valid email address.Please enter a comment.CAPTCHA challenge response provided was incorrect. Please try again.