Understand the numbers
SPOT FINANCIAL MISCONDUCT There is no greater function in a business than managing your money.
Numbers are the language of business, so they say. Cost of sale, gross margin, net profit, depreciation and liabilities are words that leave some seasoned business owners with egg on their faces due to a lack of understanding.
But all these terms are intended to determine the bottom line. The number of entrepreneurs who cannot speak the language of business – have the ability to understand the numbers – is alarming.
Numbers do not lie and there is no better method to gauge the health and performance of your business than to look at the numbers.
As a business owner it makes sense to be in a position to read and understand the numbers. However, during the course of history it seems business owners decided that dealing with numbers was too complicated or a mundane task that could be accomplished by someone else. Hence today, financial managers and accountants are generally responsible for the financial management of a business.
Granted, a business owner has many functions that he or she must cater to and, by all means, delegation is prudent to free up time for the more important functions of a business. But in that case, one could argue that there is no greater function in a business than managing your money. After all, that’s why people engage in business: to make a profit and increase their wealth.
As such, why do so many business owners hand over such a vital – and arguably the most important management function – to people who have very (relatively) little to lose? If financial misconduct occurs, you, the business owner, have everything to lose.
Nonetheless, the system is as it is today and the norm is to hire individuals who are proficient in numbers to effectively manage your money. But that doesn’t mean you must be oblivious to the numbers. In fact, it’s advisable to take up elementary studies on the topic. At the very least you must be able to read a financial statement, which in all honesty isn’t that complicated.
If you never understand anything else about financial accounting, understand the financial statement. Why? Because it tells you if you made a profit or a loss over a specified period of time; it indicates the health of your business, such as your debt versus cash flow; and last, but not least, it shows you where your money is going and who is possibly cutting a little slice for themselves.
We like to believe we work with honest people but when it comes to money – especially when your employees deduce your inability to manage it – they could certainly take advantage.