Entrepreneurs wear dozens of hats: They are product designers, salespeople, customer service reps, marketers, executives, and grunts. Yet, the one role many entrepreneurs are less than ready to take on is that of financial expert. Businesses need money to survive, and entrepreneurs are responsible for finding and managing funding appropriately. Those who are effective with their finances will likely build strong, successful businesses; those who struggle to oversee their dollars and cents are likely to fail.
Thus, it is incredibly important for aspiring business owners to become financial leaders. Here are a few common qualities of capable business leaders who have smart control over their finances.
They Know Their Numbers:
First and foremost, entrepreneurs must identify which numbers drive their businesses. For most businesses, the metrics will be nearly identical; nearly all effective business owners keep close eyes on their:
- Cash balance, or the amount of money in the bank.
- Net income, or the amount leftover after subtracting expenses from profit.
- P&L statement, or a snapshot of net income over a specific period, usually quarterly.
- Sales figures, or the amount of transactions being made.
More specialized businesses might pay attention to more specialized numbers. For example, restaurants and retailers must be particularly diligent in regard to price points and gross margins, so they aren’t spending more acquiring their products than they receive upon resale. Additionally, some businesses must carefully watch their inventory numbers to avoid running out of crucial items.
The best business owners not only know their most important numbers without consulting any reports, they track their metrics over time to understand how the business is changing. Then, business leaders can make informed financial decisions to boost the business’s future.
They Share Their Numbers:
A business leader needs a finance-savvy team to become a successful financial leader. Sharing the business’s critical numbers with the team is a step toward building a transparent, financially-intelligent business. Typically, employees tend to grossly overestimate a business’s income, assuming that business leaders take absurd amounts while they struggle for their comparatively meager paychecks. However, business leaders know this to be false, and sharing the true numbers with their teams, leaders can dispel this detrimental myth.
Plus, when employees know the business’s growth and profit, they are more likely to feel directly connected to the business’s successes and failures. Therefore, they tend to work harder to see the business improve. Additionally, a profitable business is more likely to invest in its employees, providing higher salaries and better benefits, so workers who see their hard work paying off are more likely to continue being productive.
They Look Toward Growth:
A startup shouldn’t stay a startup forever; business leaders should be searching constantly for opportunities to help their businesses grow. While sometimes this means altering business practices, often changes to financial behavior spurs growth, so leaders should be well-versed in financial actions that can lead to increased potential for profits.
Cash flow and funding opportunities are among the most important avenues for increasing growth. Even profitable businesses often require financial aid, and financial leaders are well-aware of the best options for their businesses. Some funding opportunities include:
- Business loans. The standard method of procuring business funds.
- Venture capitalism. VCs aren’t necessarily easy to attract, but they have the potential to offer the most money.
- Government grants. Businesses led by or for minority groups often qualify for federal funding.
- Lines of credit. Like a mix between a credit card and a bank loan, a business line of credit provides more control over debt.
- Crowdfunding. When developing a new product or service, crowdfunding can be easy.
They Certainly Aren’t Islands:
Outside of hedge funds, rarely are one-person businesses exceedingly profitable. Smart business leaders understand that they cannot do everything for their business; they must delegate. First, business leaders should identify their expertise ― and even if that expertise lies not the financial aspects of business, they can become financial leaders by successfully transferring those responsibilities to those with greater knowledge and experience.
Self-examination is vital for any leader, and when flaws are identified and acknowledged, leaders must strive either to overcome them by gaining education or experience or to relinquish authority over those business realms. Admittedly financially un-savvy business leaders can retain financial leadership by actively checking in on financial activities and financial teams without substantially impacting their work.