Who is showing you the money?

by Adina Luca, May 16, 2017

Here’s the scenario: you have a business in professional services and employ a number of people. You’ve been successful for a while and are still growing steadily. One of your employees has the role of ‘finance and admin manager’, and this person is someone you trust to take care of your financial matters. He does your basic accounting, keeps in contact with suppliers, helps with invoices and contracts, and does a lot of other admin tasks. Your office infrastructure revolves around this person; he’s irreplaceable.

(By the way, you can rest assured we’re using the pronoun ‘he’ only for the sake of convenience.)

As for you, you understand numbers well enough to navigate negotiations with clients and intuitively grasp which of your services are profitable and which aren’t. But when it comes to the day-to-day bills, accounting and payments, you’d rather delegate. That’s why you no longer know your company bank account number by heart, you’ve forgotten how to make online payments, and you don’t really have a clue what pieces of paper are passing through your office, or when. But not to worry: your trusted finance and admin manager does know all those things.

How about taking a closer look at that ‘finance and admin manager’, though?’ That’s what this article is really about.

When they’re starting up a business, no entrepreneur has the time or money to hire someone trained specifically for the job of finance. Also it’s true that, in the beginning, there really wouldn’t be very much to do in that role. So what usually happens is that the entrepreneur finds a personal assistant they know and trust, and as time goes by that person gradually adopts of the role of finance manager.

We know the financial health of your company can actually depend on your ability to find the right person for this job, recognise their talent when you see it, and know when to let them go. If well suited for this job, this person can prevent your business from getting into trouble and literally save you money every minute of the day. Or, conversely, you might be losing money every minute of the day because, frankly, your employee would be better off doing something else. Unfortunately, however, you might have no idea this is happening to you.

That’s why we’ve developed a little test to help identify whether your employee is the equivalent of an in-house stock of gold or, if you’re not so fortunate, the source of a potential disaster which might be unfolding at this very minute.

The test questions have only two possible answers. If you pick the first answer, we recommend you keep that person happily employed with your company and give him an annual bonus that reflects your increased profits. If you pick the second answer for most questions, we think you should let that person find an alternative job, because what he’s doing now surely isn’t what he’s really cut out to do with his professional life.

Here’s the test. Good luck.

  • Your phone and internet provider has sent you a bill which is much higher than usual. For some reason they’ve overcharged you for mobile data packages. Your finance manager sees the bill and does what?
    • He notices and takes it personally; he checks with you and the other mobile data users in the company to verify the real usage, then calls the supplier and enquires about the bill. When he meets with resistance he deals assertively with the supplier so as to get the bill corrected.
    • He notices that the amount is higher but guesses you’ve simply increased your mobile data usage, so he lets it pass.
  • The company is short of cash after a period of holidays. But your finance manager needs to pay a fairly big corporate tax bill in about a month’s time. So he does one of the following:
    • He checks all the outstanding client bills to see whether he can get you and your sales colleagues to press clients into paying a bit faster this time. He calls you to discuss collection procedures and how best to prevent a similar situation happening again in future.
    • As collection isn’t actually his responsibility, he calls you to ask for permission to increase your company overdraft so as to be able to pay the upcoming tax bill.
  • Clients have been buying less than usual. It might just be a passing phase – but in any case you’ve asked your finance manager for a report on the company’s current costs, to see whether there’s any scope for adjustments to help you get over the bump in the road. What does he do?
    • For each category of costs he prepares a spreadsheet with numbers – past and projected – and associated percentages, showing how they’ve changed over time. He talks to you about the percentages and about potentially cheaper ways of continuing to do the same things you’ve been doing.
    • He prepares a spreadsheet with approximate costs, all lumped together. He talks to you, but has already concluded there isn’t much that can be done about costs because, well, they are what they are. His idea is that the company’s sales people should be pushed to bring in more revenue.
  • You’ve put together a ‘management team’ consisting of your best people. You organise meetings to discuss ways of expanding the business, having asked your finance manager to be part of these meetings and to add substance to the discussion by providing the relevant figures. He does one of the following:
    • He comes to every meeting with both the current and projected figures for each month and quarter, and has calculated the profitability of each business line and service to help you with your decision making. He creates spreadsheets that can be used as finance modelling to test out assumptions and decisions. Everyone else ends up referring to his spreadsheet calculations, having understood that they accurately express your company’s current reality.
    • He doesn’t attend all the meetings as he’s too busy with day-to-day finance matters, which are more important than management discussions. When he shows up he answers any finance questions with numbers which are basically just guesses; he then sends some calculations to the team by email after the meeting. But no one else is actually able to understand the numbers – so no one ever refers to them, let alone bases a decision on them.
  • You have regular meetings with your finance manager to check the numbers. At the meetings, what does he do?
    • He always shows the numbers both as absolute figures and percentages, grouped under categories which help you understand their purpose. He discusses the grouping and purpose, commenting on the implications of increased or decreased percentages. Where available, he shows comparative percentages with previous years or industry benchmarks.
    • He never provides anything except the absolute figures, either in simplified categories (such as ‘general expenses’) or no categories at all, and has nothing to say about their upward or downward trends. He makes no reference to previous years or industry benchmarks.

So, how did the test work out for you? What kind of finance person have you managed to attract and nurture in-house?

If your answers were generally somewhere in the middle, you can be pretty sure there are aspects of your finances you don’t know about because they’re not being communicated to you. You need to ask your finance manager to up his game. And don’t bury your head in the sand because it’s all too complicated. Ignorance costs money.