I have a client with a mature business but was operating with a heart of an elementary school kid. What I mean is that
they had an immature finance department that was keeping them from growing.
Remember, Cash = Blood. And the Cardiovascular System of a human body is the Financial System of the business body.
If your heart (finance dept) does not grow with your body, you will have blood flow (cash flow) problems, thus shortening your life (personal and business).
Reasons Not to Settle for a Weak Finance Team!
In an earlier article, I wrote about Finance being the heart of your company (in a functional sense, not emotional sense). As your body matures, your heart develops into a stronger muscle in order to deliver the blood to more developed parts of your body. As your company grows, the horsepower of your finance department must get stronger to meet the cash flow needs of your maturing organization.
My client had a team of accounting clerks supervised by a non-financial person well into their second decade of business. She couldn’t understand why they were not more profitable even though revenues were growing 15% consistently the past 5 years. They were working harder than ever, but not making more money. When I asked her and the financial manager what services were most profitable for them, they couldn’t give me a clear answer. They assumed all were profitable since the business was profitable overall.
As you grow in your human body, your body needs more blood to carry out the critical functions of your body. An average adult needs twice as much blood as an average child. This amount of blood requires a strong and mature heart to distribute the blood accordingly. Your business needs more cash as it matures in order to carry out the critical functions of your business body. So you need a more mature finance department to distribute the cash accordingly.
Good Financial Metrics Avoid Heart Attacks!
My client example is a common story with entrepreneurs who lead growing companies without the financial acumen. They depend on the knowledge of their finance department and assume everything is going okay. So they don’t ever get good financial metrics or a good pulse of the organization. The only way to know how your heart is doing is to run some diagnostics such as blood pressure, heart rate, electrocardiograms, etc. These diagnostics are your financial metrics for your company. If you don’t have good financial metrics, you’re prone for a heart attack in your business.
My client was getting weaker and weaker as profits were declining. Fortunately, she had to go through an unexpected exit of her finance manager, opening her eyes to poor financial management over several years. She has since hired a CFO which was more appropriate for the size and maturity of her company. Last year, she more than doubled her profit, representing her best profits ever . . . a healthier business body!
Do You REALLY Know Your Financial Health?
How is the heart of your organization? Are you operating with an immature financial system with your mature business body? If so, you’re restricting your growth and the means to operate your business with meaning financial data to give you a good pulse in your company.
Do you know which services or product lines are most profitable for you? Do you know your gross margin and profit margin? If not,
it may be time to get more mature finance team members to get a better pulse of your company.
One of the tools I highly recommend to gain insights in this area is the “8 Cash Flow Drivers” in the EOS Toolbox. It takes your leadership team through a discovery process of what truly drives cash/profit in your organization. It’s a great way to shed light on what’s financially most important and to drive accountability.
Take the Organizational Checkup to gauge the health of your company! For more information on creating a healthy business lifestyle, read about the Entrepreneurial Operating System (EOS).
My next blog will be a deeper dive of your Digestive System – your Operations. Remember, Food = Supply!
To Your Business Health!