Patch Baker’s recent Entrepreneur.com article “7 Unconventional Things You Need to Build and Scale a $100 Million Business” is inspired because it talks about very real issues that most people assume or ignore when running and growing a business.
Baker makes excellent points when he says that business owners need to know how to make forecasts and to be able to do math. He also writes that successful business leaders need a Personal Security Detail (PSD) made up of trusted advisors.
Many people who are great at growing sales may not be as good at growing the bottom line. They may understand accounting, math, or even forecasting, but they don’t understand or are unable to use financial tools. They fail to think analytically about the finances of the company and the financial implications of business choices that are made every day.
For example, an accountant would say that inventory is an asset, which most people interpret as a good thing. A finance person sees inventory as a “use of capital” and wants to utilize the asset in the most efficient way possible. Additionally, not all sales are necessarily profitable. Sometimes, your biggest customer is your least profitable one.
Beyond having a PSD, even leaders with financial know-how need what I call a Financial Quarterback (FQ). The FQ can do more than look at the backward-looking numbers provided by bookkeepers. He or she notices the trends in the markets, does the math, and makes analytical predictions about the future, while consulting with the CEO. A Financial Quarterback can tell the CEO if a customer is contributing to the bottom line or hurting it.
The FQ will make sure that the company does not run out of cash – the lifeblood of any business. They provide caution on investing in projects or assets that would have limited financial return. Maybe most importantly, any leader who wants to grow to the $100 million mark needs a savvy financial expert, one who can tell them the best way to finance growth, whether it be organic via retained earnings, making acquisitions, taking on debt, or seeking equity funding.
Over the years, I have seen far too many companies founder, simply because they lacked a competent Financial Quarterback. But I’ve also seen businesses increase profits and grow dramatically by hiring new financial talent with fresh perspectives and stronger toolkits.