by Karen Turnquist
There are some questions that nobody likes to be asked.
“What do you think of my haircut?”
“Do you mind if my parents move in with us for a while?”
“Do these pants make me look fat?”
These are the types of questions for which honesty is not always the best policy.
But when clients ask me tough questions, I always respond honestly. Because they ask the questions sincerely—looking for a professional opinion from a trusted advisor—honestly is really the only policy.
Recently, a client asked me a potentially sensitive question: “How would you rank or compare us to other companies regarding how professionally we run our business?”
The answer I offered is one I would give to a majority of small- to medium-sized companies—those with sales between $2 million and $30 million.
I told him that his company, like most such companies, had experienced a breakdown in the management of its financial functions.
A common entrepreneurial challenge
When you reflect on it, it shouldn’t be surprising that this is a challenge for many business owners.
Companies are started by entrepreneurs who are driven to create, build, grow and succeed at something they are passionate about. Many business owners gravitate to things that give life and lift to their business: product development, sales and production.
Meanwhile, they may find financial matters tedious and delegate them to someone on their staff. This lack of attention can be very damaging. Decisions made without the benefit of carefully considered financial statements, budgets and analysis can be catastrophic.
Even when business owners hire a bookkeeper, accountant, controller or chief financial officer to fill their financial position, these breakdowns often occur.
Why?
Because it’s difficult for business owners with limited financial expertise or interest to hire the right person in the first place, much less provide proper oversight once that person is on the job.
Tips for avoiding a financial disconnect
So what’s our advice to business owners looking to avoid a disconnect with their important financial function
- Take responsibility for your company’s financial condition. This means understanding everything about your financial statements. If you don’t, you’re not alone. So don’t be afraid or embarrassed to seek help from someone who does. (Which leads us to…)
- If it doesn’t make sense to you, it doesn’t make sense! If your accountant or bookkeeper can’t explain your company financial statement simply enough for you to understand, you need a new accountant.
- Build a long-term model. Once you are confident you understand your financials and that they are accurate, build an ongoing financial model that takes into account all the things that are involved in selling, making and delivering your product or service to your customers.
We advise most of our clients who don’t have this expertise in-house to use a contract CFO or another source of experienced help for financial modeling. These people can serve as a great resource to your existing accounting staff, a good mentor to you and usually can produce a faster, more reliable model.
It’s important to note that an essential result of any model is that everyone on staff knows how their actions contribute to the business’ financial success.
If you’re struggling to address this challenge—know that you’re not alone. It’s one we help businesses overcome all the time.
So give us a call. We promise to roll up our sleeves and give you honest answers to all of your questions.
Well, as long as they aren’t about your new haircut.
As the CEO and founder of Sage Business Credit, Karen Turnquist helps entrepreneurs build value in their businesses. She’s facilitated more than $2 billion in accounts-receivable financing for emerging businesses and believes there’s no greater reward than seeing fellow entrepreneurs succeed.