During one of the New York City FastTrac programs to help existing NYC businesses recover from today’s economy, a woman I will call “Christine” was hit very hard in her business.
To the point where she has been living out of her car.
She had a successful design company but various people involved in the company were stealing and embezzling from her until she had to shut down.
She started the evening by saying, “I am a designer and that is what I need to focus on. I don’t understand numbers and it makes me crazy trying to figure them out. I’m better off having someone else do them for me.”
And she was strongly adamant about this. She convinced herself numbers were not her thing nor would they ever be.
I explained to the class in order to maximize being a successful entrepreneur, however one defines success, they must understand and take advantage of knowing their business finances.
Just look at two very high profile and extreme examples: Michael Jackson and Annie Leibovitz.
In Jackson’s case, his financials are such a mess it will take teams of people quite some time to sort through how much money he has, where it is, and who is owed what.
And in Leibovitz’s case she signed her life’s work away to a debtor she owes $24MM to. All of the rights to her photography, houses in NYC and Rhinebeck are about to her financer’s.
Ms. Leibovitz reportedly earns $3 million a year for her magazine work for Vanity Fair and Vogue and tens of thousands of dollars daily for commercial shoots.
So how could this happen?
Leibovitz’s case is all telling for many people in her situation: “Friends and colleagues said that despite her many successes, Ms. Leibovitz has been shadowed by a long history of less than careful financial dealings,” writes Allen Salken of the New York Times last week.
The world is full of very talented people with incredible gifts. Often what prevents them from being financially and/or commercially successful is not understanding and more importantly, knowing their numbers.
It is their relationship to money.
In each of the three above examples, they feel/felt an aversion to money. They told themselves they are not money people nor will they ever be. It was a conversation they had in their head.
And each are/were extremely intelligent, motivated, and even aggressive people in business and their lives.
Is this you?
Here are the three things you should immediately do about it:
- Get off it! Understanding finances is really not that difficult. It takes probably just a few sessions and conversations with a numbers-savvy business person to get a good grasp of it.
- Learn the basics. There are only three financial statements you must need to understand fully to get started. From the three, you can tell the financial health of any business, whether it be a start up or General Motors. Cash Flow, Income and Balance Sheet statements.
- Commit two hours per week. Use someone in the beginning to coach you and help you work through the financial statements and ratios important in your business until you get the hang of it. It will be like going to the gym, where it is tough in the beginning, but gets easier as you get better at it.
For more information on understanding more on business finances, check out the Small Business Administration website.
Most businesses go under from running out of cash, not because they are unprofitable. This is because they don’t plan how to manage their cash and run out of it, whether they are profitable or not.
Just like Mr. Jackson and Ms. Leibovitz.
As for “Amanda”, by the end of the night, she was getting it. She started to become excited with how easy it was to understand the basics and created a plan to bring in a few experts to help her rebuild company.
This time from a place of knowing her numbers.
Action Steps for the Week:
Using the links above for guidance, do the following four steps:
- Set up a basic version of your Income Statement. Review the past three months’ sales. Add monthly expenses. Are you showing a profit or loss? Where can you either increase sales or decrease expenses?
- Set up a Cash Flow Statement from the past three months. Review cash in and cash out. If you are not running a profitable business right now, where is the cash coming from? Where can you cut your cash going out while increasing your cash coming in?
- Run a Balance Sheet for today. What is your company’s basic net worth? Use this as a barometer in going forward.
- Do Steps 1 and 2 for the next three months. It’s call forecasting. Look to see where your business is heading and how you can manage your cash as you make your business more profitable.
Do this monthly, for starters. Each month, check to see how things are going and where they are heading.
Because without this is like driving in the dark with your headlights off. And with it, you are much more likely to have a smoother ride towards success.