Top 5 Tips for Gaining Confidence in Numbers

In one of my earlier blogs I referred to one of the biggest barriers to getting on top of the numbers in the business as being around confidence.

There are a lot of very talented CEOs working in the Social Enterprise and charity space that shut down and run a mile when faced with a spreadsheet. A lot of this is down to leaders being told they are rubbish at numbers at an early stage but also not being helped by their accountants. The result is low confidence.

Here are my top tips for building confidence in numbers:

Tip 1: Keep the maths simple

Understanding financial information is all about simple arithmetic – adding, subtracting, multiplication and division – rather than anything more exotic. I know some people will think that’s easy to say but I can assure you it’s easy to do too, by taking a step back and look at the basics. Think of it as storytelling. You tell a story of the services that your organisation provides and the impact you have and numbers tell a story in the same way.

Tip 2: Make your accountants accountable

Accountants are not providing the services they should be. Many provide you information for your management accounts three weeks after month end and will file your report to Companies House for you. The first is not that helpful and the second will soon be able to be done through software like Zero, making accountants surplus to requirement.

That of course refers to those accountants that don’t provide you value. True value comes from getting the right financial info, which:

– can provide analysis and insight in past, present & future situations
– can provide training/support and, importantly for social enterprise, link your social impact measures.

It is suddenly like giving your car a full service history and warranty.

Tip 3: Use a template

There are so many basic templates on the Internet for a P&L and cash flow. Bite the bullet and fill it out with your numbers. Make it real, as there is an emotional attachment when you use your own numbers. After all, the 70/20/10 rule of learning states that 70% of our learning comes from doing.

Tip 4: Get to grips with the language

Like most disciplines, the language of numbers can seem impenetrable and in need of a code cypher to crack it. I had a good example of this only this week, when different enterprises in the same room used the words margin, profit and surplus interchangeably. Add the layer of was it ‘net’ or ‘gross’ and the looks start to get blanker. My advice is that it does not really matter what terms you use but ensure there is consistency within your organisation about what you mean.

Tip 5: Get the right people/structure/systems around you

Having improved your own confidence, and with good accountants adding proper value, the final piece of the jigsaw is having the right talent and structure in place.

Ask yourself:

– Is your organisational structure really matched up to what you need for the size of your operations?
– What financial systems and processes do you have in place?
– What are the skills and expertise of your finance staff and do they really fit into your structure?

This is where the accountants’ value can really come into play as they advise you how to set this up correctly.

Going through an investment readiness programme can assess this and advise on changes made to make your organisation more robust. Big Lottery’s Big Potential programme is worth a look www.bigpotential.org.uk

Cash will always be King!

The thought of working with figures and managing your cashflow is probably not the thing that gets a social entrepreneur out of bed in the morning!

However, having a grip on your numbers is likely to keep your enterprise in business. Dun & Bradstreet state that 90% of company failures result from cash issues and, having recently done a lot of investment readiness work with charities and social enterprises, I’ve realised that the “Cash is King” message is still not sinking in or being acted upon.

A crucial message to get across first of all is that the money is not the sole responsibility of the Finance Director and/or treasurer. It starts from the top and that means the CEO being able to understand and manage the figures. But then at every level, down to managing even a small project, people need to have the basic skills and processes to keep cashflow positive. There are skills and techniques to learn but a lot of it comes down to confidence with numbers. I can’t tell you the number of times I’ve heard a CEO say they were told at the age of 14 they were useless at maths. It can have a long lasting impact!

In a future blog I will look at emotional attachments to numbers but, for this one, I will concentrate on some simple tips to manage your cashflow.

Manage your cashflow effectively:

Tip 1: As mentioned, the cashflow is the ultimate responsibility of the CEO. There needs to be a finance strategy for the organisation that includes goals/targets for cashflow as well as other areas like profit and reserves.

Tip 2: Actually do a basic cashflow on an Excel spreadsheet – sorry, that sounds condescending but you would be surprised how many organisations don’t have one. There are literally hundreds of basic templates out there to choose from and all you need to do is list all your income sources and lines of expenditure.

Tip 3: A useful analogy that worked for me is to think of cashflow as a water tank. Filling up the tank with water is the ‘income’ and draining the tank is your ‘expenditure’. The obvious aim is not to let the tank run dry. It’s all about maintaining the flow in and out that allows you to effectively manage your business.

Tip 4: Credit control is the tool that controls the money flowing into the tank. Areas to really focus on here are your invoice/contract payment terms (number of days) and then have the systems/processes in place to chase/collect the money if the customer goes over the number of days.

Tip 5: Managing the flow of cash out – equally important here are the payment terms you negotiate with your suppliers on the timeframe you pay them. You can also look at options such as leasing instead of buying items outright to avoid big lump sums draining from the tank.

Tip 6: Every organisation should have a set of management accounts
. You need to be able to analyse your financial info to be able to make effective business decisions. The problem is that these accounts usually only look backwards at what has happened financially. This does not help with cashflow. You need to be able to look into the future and forecast what level the water tank is going to be at. Don’t forget you can then measure your progress against your targets in your strategy.

Watch out for more blogs on cash and other business principles for the entrepreneur. Any questions, contact me at craigc@bubblechamber.net