When you were young, your teacher said, “there are no stu­pid ques­tions.”  You believed her once. Raised your hand and asked a ques­tion. Then at recess your class­mates teased you unmer­ci­ful­ly.  You made up your mind then and there, you were done with ask­ing ques­tions in pub­lic.

Now you are an adult, a busi­ness own­er.  You’ve put the recess event out of your mind.  Or have you? Is it lurk­ing back there some­where in your uncon­scious, hold­ing you back from get­ting your ques­tions answered?  Espe­cial­ly those con­fus­ing ones about account­ing and finance?

Oth­er than the rare busi­ness own­er with a finance or account­ing degree, most own­ers either grew up in the busi­ness, or came to it in some cir­cu­lar way with an unre­lat­ed degree, like phys­i­cal edu­ca­tion or soci­ol­o­gy. They have lit­tle aca­d­e­m­ic back­ground for under­stand­ing, and more impor­tant­ly know­ing how to man­age an account­ing depart­ment. Since you are a small busi­ness, your account­ing depart­ment is small, 1–3 peo­ple.  You hope they know what they are doing, but you don’t real­ly know for sure.

I was walk­ing down the hall in a client’s office one day when the busi­ness own­er called out to me, “Mack­ey, have you got a minute?”  I did in fact and walked in his office and took a seat across from his desk.  He thanked me and got up to go close the door.  Seat­ed back in his chair, he gath­ered his courage and shared his prob­lem with me.

He had come to the role of busi­ness own­er in this rapid­ly grow­ing small busi­ness because he was a fam­i­ly mem­ber.  The pri­or own­er had believed in him and trust­ed him to take over his busi­ness.  He was smart, a quick study. Over the years he had learned to act like he knew what was hap­pen­ing even when he didn’t.  His pri­ma­ry roles had always been in busi­ness devel­op­ment.

He had craft­ed his own way of under­stand­ing finan­cials, by what he called, the “In and Out method.” It had always kept him out of trou­ble, so he fig­ured it was enough. His method was to look at his cash, add receiv­ables and deduct payables.  This was his best guess of net income.  As he explained it, I shared with him that while this com­pu­ta­tion would have lit­tle rela­tion­ship to the finan­cial state­ments, it did indeed have some mer­it.

He sus­pect­ed they were head­ed for cash flow chal­lenges, but he didn’t know for sure.  Would I help him trans­late his “In and Out method” to the finan­cials he received every month?  Could I help him feel more finan­cial­ly con­fi­dent?

Over the course of the next few months, we met pri­vate­ly.  I shared infor­ma­tion about many dif­fer­ent finan­cial ques­tions that had always elud­ed him, such as:

  • how to read finan­cial state­ments
  • how costs are allo­cat­ed
  • how inven­to­ry costs are deter­mined and why that mat­ters
  • the dif­fer­ence in cash flow and income
  • how his “In and Out method” was like or unlike his finan­cials and why

I then brought in my team to help his account­ing depart­ment build new finan­cial reports such as:

  • sum­ma­ry exec­u­tive finan­cial state­ments
  • annu­al finan­cial plan
  • fore­cast­ing sys­tems
  • score­boards for depart­men­tal met­rics

Using graphs, we taught the key busi­ness unit man­agers to under­stand the finan­cial basics of the busi­ness.

The results:

  • yes, there was a cash flow cri­sis com­ing, but with this new infor­ma­tion the com­pa­ny was able to swerve rather than make a head on col­li­sion
  • new income grew 22%
  • cash flow improved 45%
  • his con­fi­dence, as he mea­sured it, was up 125% since he start­ed at ‑25%

Why did this hap­pen?

Because he had the courage to ask what many would have con­sid­ered the dumb ques­tion.  Can you rec­on­cile for me my “In and out method” with the finan­cial state­ments?   Then he kept ask­ing ques­tions, expand­ing his capac­i­ty and build­ing capac­i­ty in his team.

The teacher was right.  There are no dumb ques­tions.  Just knowl­edge that can help if you just have the courage to ask.

What finan­cial ques­tions are you avoid­ing?

Per­haps its time to raise your hand and ask.

To your pros­per­i­ty,

Mack­ey