Have you noticed how many skills it takes to be the owner and CEO of a small business? I find it one the joys, and an occasional challenge, of running my own small business. Over the past few years, I have learned a lot about marketing, setting up and maintaining a website, and writing/producing video content for my blog. In the meantime, I have developed a deeper understanding of money and finance as my clients come up with new opportunities to grow. As we talk, it seems that there are a number of skills that I coach them on to help them become financially savvy CEO's. And in the tradition of old-fashioned education, those skills can broadly be categorized as Reading, Writing, and ‘Rithmatic.
Money is expressed in numbers, so of course, math has to come first! Fortunately, most business math is at elementary and junior high level, so it’s not complex. And when we know how to use spreadsheets, it gets even easier. What can get complex is the volume of numbers that we encounter in business. The more customers we have, the more vendors there are the number of checks and credit card expenses we have, the more complicated it can appear. However, the basic math is still the same. Employee X is paid $2,500 per payroll, with 2 payrolls a month? Simple multiplication: $2,5000 x 2 payrolls per month x 12 months per year = $60,000. So please remember that the math is always basic.
And where do we need arithmetic skills? Figuring out profit margins (the spread between your price and how much it costs per product), creating budgets, estimating future cash balances, pricing, budgeting proposals, and monitoring average monthly overhead are all areas where this skill is needed. Thinking of it conversely, without these skills we run the risk of underpricing, not making as much money as we should, and even possibly running out of money!
Yes, reading is important, but for business owners, it’s also about being able to read financial reports. It might seem like those jumble of numbers on the page might seem like a foreign language, but this is a foreign language that we must master as business owners. We need to know exactly how much money we have, how to find out how much clients owe us, what we owe others, what our gross sales are, how much of those sales are paid out in the form of suppliers, raw materials, and contractors, and what our overhead is. After all, how can we possibly do the math if we cannot start by even knowing what our trends are? So reading financial reports is our next key skill.
Finally, I find that being able to speak and write about finances is important too. Negotiating is very high up on this list. By being able to express our needs, our wants, and our positions, we can boost our bottom line through better prices, proposals, and contracts. Having a better financial vocabulary allows us to communicate with our banker, lenders, and investors. And finally, our team—especially bookkeeper in this case—will be better equipped to do their job if we succinctly articulate what we need from them.
So how can we do develop these skills? Personally, becoming a Toastmaster taught me a lot about communicating. There is a variety of written and video training on understanding financial reports that you can look for online for free. Check out the video below!