Sunday, December 28, 2003
*
F is for:
Financial illiteracy
If business is a game, money is how you keep the score.
Some understanding of how finances work is essential if you are going to play the game well.
Most businesses take it for granted that some people have to understand finances – people like the finance department, or the owner-manager. [1]
But then they assume that everyone else can do without.
To some, this stance is a convenient way of avoiding disclosing uncomfortable financial details, like relative salaries or the extent of profits. To others, it simply avoids wasting people's paid time on subjects which have nothing to do with them and which they won’t understand anyway.
Both of these views are badly wrong.
At the top of the organisation, basics like arranging the right financing and keeping control of your cashflow are a start – but that’s all.
Unless you can interpret the messages embedded in your financial performance, you have little chance of devising an effective strategy and taking control of your business. [2]
At best, financial illiteracy places you at a conversational disadvantage. Bankers find it difficult to respect executives who cannot distinguish between debtors and creditors. Professional advisers see an open field for fee maximisation. And potential merger partners get a clear indication of who should be in charge of the new entity.
But financial literacy is important at the lower levels, too. While not everyone needs to be a qualified accountant, all your employees will benefit if they at least understand the financial implications of what they are doing.
There is little point in allowing your best creative brains to develop new ideas unless they make financial sense.
Your sales people will never make a full contribution to profitability if their financial nous begins and ends with revenue (and the associated commissions).
And people throughout the company will always be tempted to waste money if they can’t see the impact they are having on the bottom line.
As for the popular idea that some employees are simply not equipped to get to grips with numbers, it’s a ludicrous misconception.
Strip away the jargon and accounting basics are no more complex than the thought processes people take for granted in their private lives.
Your employees are already interested in money; it doesn’t take much effort to help them understand it, too.
[1] If they don’t , they should. See Finances.
[2] Struggling companies sometimes replace the chief executive with a ‘company doctor’, typically with a strong accounting background, to turn the business round. When this approach succeeds, the company doctor is hailed as a business guru. Why can an accountant – with little or no experience of the company’s industry and particular circumstances – succeed where the existing chief executive has failed? Often because the business was well placed all along, but financial illiteracy has come near to destroying it.
F is for:
Financial illiteracy
If business is a game, money is how you keep the score.
Some understanding of how finances work is essential if you are going to play the game well.
Most businesses take it for granted that some people have to understand finances – people like the finance department, or the owner-manager. [1]
But then they assume that everyone else can do without.
To some, this stance is a convenient way of avoiding disclosing uncomfortable financial details, like relative salaries or the extent of profits. To others, it simply avoids wasting people's paid time on subjects which have nothing to do with them and which they won’t understand anyway.
Both of these views are badly wrong.
At the top of the organisation, basics like arranging the right financing and keeping control of your cashflow are a start – but that’s all.
Unless you can interpret the messages embedded in your financial performance, you have little chance of devising an effective strategy and taking control of your business. [2]
At best, financial illiteracy places you at a conversational disadvantage. Bankers find it difficult to respect executives who cannot distinguish between debtors and creditors. Professional advisers see an open field for fee maximisation. And potential merger partners get a clear indication of who should be in charge of the new entity.
But financial literacy is important at the lower levels, too. While not everyone needs to be a qualified accountant, all your employees will benefit if they at least understand the financial implications of what they are doing.
There is little point in allowing your best creative brains to develop new ideas unless they make financial sense.
Your sales people will never make a full contribution to profitability if their financial nous begins and ends with revenue (and the associated commissions).
And people throughout the company will always be tempted to waste money if they can’t see the impact they are having on the bottom line.
As for the popular idea that some employees are simply not equipped to get to grips with numbers, it’s a ludicrous misconception.
Strip away the jargon and accounting basics are no more complex than the thought processes people take for granted in their private lives.
Your employees are already interested in money; it doesn’t take much effort to help them understand it, too.
[1] If they don’t , they should. See Finances.
[2] Struggling companies sometimes replace the chief executive with a ‘company doctor’, typically with a strong accounting background, to turn the business round. When this approach succeeds, the company doctor is hailed as a business guru. Why can an accountant – with little or no experience of the company’s industry and particular circumstances – succeed where the existing chief executive has failed? Often because the business was well placed all along, but financial illiteracy has come near to destroying it.
Friday, December 19, 2003
*
F is for:
Finances
Imagine a man who uses his overdraft, rather than a mortgage, to finance his house purchase. [1]
Someone who has no idea what his bank balance is and no idea what his bills are likely to be. Who gives a stranger his car keys against a vague promise that the stranger will send him some money later. Who does nothing when the cheque fails to turn up by the end of the month.
That man is behaving like a fool.
He is also behaving like a typical small business owner-manager.
By relying on overdraft financing, he puts the whole business on a weak financial footing, needlessly increasing risks and stress.
By failing to budget, he misses a quick, easy way to minimise the likelihood and potential impact of unpleasant surprises.
By extending credit to financially vulnerable customers, he sets himself up for defaults.
And by allowing unpaid invoices to accumulate, he adds an extra burden to an already shaky edifice.
Why?
It’s not stupidity. Most owner-managers are streetwise to a degree that puts the typical corporate drone to shame.
It’s not laziness. They live and breathe the business.
It’s not because there is no other choice. All sorts of financing options are not just available but positively thrust at businesses by bankers and suppliers.
And it’s not because the individual hasn’t got the time – though that is generally the preferred excuse.
It’s fear.
All too often, unhappy school experiences have left a permanent aversion to numbers. But, more than that, the owner-manager feels the pressure, worrying that the whole business could come crashing down around him.
Finance is the monster under the bed. The one he just can’t look at, in case it grabs him. The more he ignores it, the bigger and hungrier it grows.
So here are three vital words of advice to anyone who finds himself in this unhappy position.
Face your fear.
No more procrastination. No more relying on your accountant to look after it for you.
Turn on all the lights and have a good look round.
Nine times out of ten, you’ll find yourself wondering what you were ever afraid of. [2]
[1] You’ll have to imagine that the bank involved has an unusually flexible approach.
[2] The unlucky tenth person will find that he’s bankrupt. But, frankly, he was doomed anyway.
F is for:
Finances
Imagine a man who uses his overdraft, rather than a mortgage, to finance his house purchase. [1]
Someone who has no idea what his bank balance is and no idea what his bills are likely to be. Who gives a stranger his car keys against a vague promise that the stranger will send him some money later. Who does nothing when the cheque fails to turn up by the end of the month.
That man is behaving like a fool.
He is also behaving like a typical small business owner-manager.
By relying on overdraft financing, he puts the whole business on a weak financial footing, needlessly increasing risks and stress.
By failing to budget, he misses a quick, easy way to minimise the likelihood and potential impact of unpleasant surprises.
By extending credit to financially vulnerable customers, he sets himself up for defaults.
And by allowing unpaid invoices to accumulate, he adds an extra burden to an already shaky edifice.
Why?
It’s not stupidity. Most owner-managers are streetwise to a degree that puts the typical corporate drone to shame.
It’s not laziness. They live and breathe the business.
It’s not because there is no other choice. All sorts of financing options are not just available but positively thrust at businesses by bankers and suppliers.
And it’s not because the individual hasn’t got the time – though that is generally the preferred excuse.
It’s fear.
All too often, unhappy school experiences have left a permanent aversion to numbers. But, more than that, the owner-manager feels the pressure, worrying that the whole business could come crashing down around him.
Finance is the monster under the bed. The one he just can’t look at, in case it grabs him. The more he ignores it, the bigger and hungrier it grows.
So here are three vital words of advice to anyone who finds himself in this unhappy position.
Face your fear.
No more procrastination. No more relying on your accountant to look after it for you.
Turn on all the lights and have a good look round.
Nine times out of ten, you’ll find yourself wondering what you were ever afraid of. [2]
[1] You’ll have to imagine that the bank involved has an unusually flexible approach.
[2] The unlucky tenth person will find that he’s bankrupt. But, frankly, he was doomed anyway.
Friday, December 12, 2003
*
F is for:
Fads
Faced with the incomprehensible, there is a natural tendency to look for explanations.
For centuries, philosophers have agonised over the meaning of life. The great religions have attracted followers in their millions. Beliefs are handed down from parent to child, slowly evolving as spiritual leaders reinterpret and update them to relate more closely to modern circumstances.
It’s not hard to see the attraction of a sense of purpose, certainty and belonging in a confusing world.
The same urge to understand drives many businessmen, and management theory is there to accommodate them.
Reading the odd book or article is enough to comfort those who merely seek to overcome the nagging sense that they don’t know what they are doing.
The more deeply frustrated businessman might consider subjecting himself to an MBA.
But for some, these dry bones are not enough.
They seek higher mysteries, a deeper understanding, something more exclusive than the broad church of mainstream management theory.
And in the wonder that is the free market economy, there is always someone willing to fill that need.
Like cult leaders, these self-proclaimed business prophets have excellent technique. They know how to create the sense of mystery and excitement which lures the gullible.
The ideas are new, only to be shared with a select band of followers. The mystery is protected from the casual view of outsiders with an acronym or an oblique title. The philosophy is explained in a special language only the higher level initiate can understand. A fad is born.
Treat the fad as a curiosity, an interesting or amusing new perspective [1], and the risk to you is minimal.
Most of us can dabble with the trivial fun of superstitions, or even the excitement of the ouija board, without coming to harm.
Start to believe, against the odds, that this fad’s promoters have suddenly discovered the truth which has eluded everyone else, and you run the risk of ridicule.
Deep down, everyone knows that the fad will be a short-lived affair.
A few months or years later, the fashionable crowd will have moved on. If you haven’t kept up, you’ll be left wearing last year’s fashions. [2]
Worse still, when the fad’s trappings are stripped away, you may find yourself revealed as the mutton you were all along.
But the greatest danger is for the true converts, those who immerse themselves in the new fad.
If a fad changes your life, it will almost certainly be for the worse.
You become cut off from friends and family, and find yourself relieved of your money. Deprogramming can be a long and painful experience. Be warned: joining a cult isn’t funny and it isn’t clever.
[1] There are so many fads available, you can choose pretty much anything that takes your fancy, from any time period. During 2002, many academics worked hard to reframe management theories in terms of football’s World Cup. Others persist in banging on about the lessons to be learnt from ancient generals and warlords.
[2] Jack Welch, former CEO of General Electric, was a famous believer in ‘Six Sigma’. But the credibility of this particular fad has taken a battering as doubts have grown about Welch’s reputation as a business paragon. ‘The man who mentioned Six Sigma’ would now make a good Bateman cartoon. If you are still a believer, keep quiet for the time being. Doubtless some consultant will soon be along to give the concepts new life as ‘Ten Tau’.
F is for:
Fads
Faced with the incomprehensible, there is a natural tendency to look for explanations.
For centuries, philosophers have agonised over the meaning of life. The great religions have attracted followers in their millions. Beliefs are handed down from parent to child, slowly evolving as spiritual leaders reinterpret and update them to relate more closely to modern circumstances.
It’s not hard to see the attraction of a sense of purpose, certainty and belonging in a confusing world.
The same urge to understand drives many businessmen, and management theory is there to accommodate them.
Reading the odd book or article is enough to comfort those who merely seek to overcome the nagging sense that they don’t know what they are doing.
The more deeply frustrated businessman might consider subjecting himself to an MBA.
But for some, these dry bones are not enough.
They seek higher mysteries, a deeper understanding, something more exclusive than the broad church of mainstream management theory.
And in the wonder that is the free market economy, there is always someone willing to fill that need.
Like cult leaders, these self-proclaimed business prophets have excellent technique. They know how to create the sense of mystery and excitement which lures the gullible.
The ideas are new, only to be shared with a select band of followers. The mystery is protected from the casual view of outsiders with an acronym or an oblique title. The philosophy is explained in a special language only the higher level initiate can understand. A fad is born.
Treat the fad as a curiosity, an interesting or amusing new perspective [1], and the risk to you is minimal.
Most of us can dabble with the trivial fun of superstitions, or even the excitement of the ouija board, without coming to harm.
Start to believe, against the odds, that this fad’s promoters have suddenly discovered the truth which has eluded everyone else, and you run the risk of ridicule.
Deep down, everyone knows that the fad will be a short-lived affair.
A few months or years later, the fashionable crowd will have moved on. If you haven’t kept up, you’ll be left wearing last year’s fashions. [2]
Worse still, when the fad’s trappings are stripped away, you may find yourself revealed as the mutton you were all along.
But the greatest danger is for the true converts, those who immerse themselves in the new fad.
If a fad changes your life, it will almost certainly be for the worse.
You become cut off from friends and family, and find yourself relieved of your money. Deprogramming can be a long and painful experience. Be warned: joining a cult isn’t funny and it isn’t clever.
[1] There are so many fads available, you can choose pretty much anything that takes your fancy, from any time period. During 2002, many academics worked hard to reframe management theories in terms of football’s World Cup. Others persist in banging on about the lessons to be learnt from ancient generals and warlords.
[2] Jack Welch, former CEO of General Electric, was a famous believer in ‘Six Sigma’. But the credibility of this particular fad has taken a battering as doubts have grown about Welch’s reputation as a business paragon. ‘The man who mentioned Six Sigma’ would now make a good Bateman cartoon. If you are still a believer, keep quiet for the time being. Doubtless some consultant will soon be along to give the concepts new life as ‘Ten Tau’.
