How can a manager of a small and medium business understand the company’s finances and manage them competently?
Financial management is as important a task in business as management of sales, production, fulfillment of obligations, personnel and brand of the company. As soon as an entrepreneur realizes this, he finds time and resources to understand the topic and implement financial performance management in his business and in his life. How to do it quickly, inexpensively and for sure?
The advantage will be the business in which one of the founders or directors understands finance. Such companies are initially more systemic, manageable, and easier to scale.
In most cases, however, owners and managers of small companies do not have a basic economic education, hence the numerous programs (including at the state level) to improve the financial literacy of “non-financial professionals. If that’s your case, I think there are three ways to move forward on the path to financial management in your business.
Option 1. Everything is to be studied, led and counted
But of course, you’re not gonna do that. And if you do, then who will be involved in business development, strategy, employees, product, if the manager is busy with accounting, reporting, monitoring and analysis?
In this case, there is a great risk of drowning in the volume of information, spending a lot of time, quitting the task, not implementing it, merging, because every day you have more important and burning tasks. This is most often the case.
Poor quality of the result (numbers, indicators, systems) is another frequent outcome. In order to manage your finances, first of all, you need to constantly read and plan them, as well as monitor, analyze, draw conclusions and implement changes. Financial accounting is a routine, which can only be done qualitatively by organized and system people, and it is not always possible to include entrepreneurs and strategists.
In recent years, the market has seen an increase in training courses and software products aimed at teaching managers of small companies to keep records and work with numbers. Argument: Professionals are expensive, you can keep records yourself, especially in the early stages of the company’s development. My opinion: Director’s time is more expensive. By doing accounting instead of business development, you are hurting your company.
For example, I am an economist by training. But in my projects I don’t keep accounting and reporting for a long time, because it’s an operational, routine task, which takes time from strategic and creative tasks. I delegate such work to employees and contractors, and it is several times cheaper for the company than if I was a manager. It is calculated.
Option 2. Delegate to specialists without knowing for yourself
In this case, the business owner delegates the issue of finance to a specialist (accountant, financier, consultant). A typical request is to “start counting something”, or “counting everything”, or “putting the finances in order”. Without understanding what should happen at the exit, what will be the result of this task?
When the manager does not know what the performer is doing, how can he control and accept the result? When he does not understand the reports, how will he use them to manage the business? When he doesn’t know what indicators (except for the money in the cash register) exist and how to plan them, how will he explain his financial goals to the specialists? Nothing.
In my practice, there were cases when the owner of a company ordered automation of reporting, created a financial department, hired consulting companies, invested millions in the digitization of the business, and when he was brought reports, he looked at them and wondered: “And why do I need them? What to do with them? And when asked about financial goals, he couldn’t distinguish between revenue, margin, profit and money.
Risks of this option: to get an unclear, low-quality or unclaimed result in the form of a set of unnecessary numbers, tables and conclusions.
Option 3. Everybody’s in their seats. Basicly understand the topic. Delegate. Together with competent specialists to manage the company’s finances
The entrepreneur and manager in the company have their own functions and tasks.
In my opinion, the task of a manager is to have a basic understanding of the topic, to find executors, to set them a task and to use the results in the management and development of the company.
Everything. If you immerse yourself deeply in each area, the manager moves from the role of a manager to the role of an executor. If you don’t immerse yourself at all, then management will be more chaotic than effective.
As far as the topic of finance is concerned, “basic understanding” means
Read the review literature, take a short course or training on “Finance for managers”;
To understand how the company’s finances work, what the figures tell us, how to read the reports and plan the indicators, and how the finance department works.
Advantages of this approach:
The manager quickly becomes immersed in the topic;
The company (on staff or part-time/project employment) has competent specialists (their competence and adequacy can be assessed by the manager);
Qualitative data appears, the manager understands it and uses it as a business management tool.
My opinion is that a manager should not sit behind textbooks and financial courses, nor should he receive special financial education, whether it is a one- or two-person microcompany or a medium business with serious turnover.
Finance is an area that needs to be delegated to qualified specialists. In order to properly delegate and use the results in their interests, it is necessary to have a basic understanding of the topic – at the top level, without long-term immersion in the details.
Which option do you choose and why? If you have a “basic understanding”, start with the book “How to put things in order in the company’s finances. Practical Guide for Small and Medium-Sized Businesses” (read for yourself and with your financiers).
