How to Develop Financial Confidence
Fear of numbers. It sounds silly, doesn’t it? Yet that’s what designers often say to me is why they don’t pay more attention to their business’s financial statements. They find the numbers intimidating or confusing. They don’t understand what all those columns and accounting terms mean. They’d rather let a bookkeeper or CPA keep watch over the numbers and alert them if they see a problem.
Of course, these designers aren’t really afraid of the numbers. They work with numbers every day, taking measurements, costing products, calculating fees and expenses, etc. What they really are expressing is their lack of confidence because they’ve never had any formal training in business finance.
If that sounds like you, it’s time to get the assistance you need to learn how to read those statements and understand what they mean. Otherwise, no matter how busy you seem to be or how much revenue you’re taking in, you haven’t a clue as to how well your business is doing. And what you don’t know could hurt you.
First things first. There are plenty of books, courses and advisers that can teach you the basics of business finance and de-mystify those seemingly intimidating financial statements. Don’t be afraid to ask for help. Take the time you need to feel comfortable reading and interpreting documents like the balance sheet, income statement and cash flow statement. Then sit down with your bookkeeper or accountant and discuss the particulars of what those documents for your business are telling you about its performance and health. Pay attention to things like how much debt you’re carrying, how much is owed to you in outstanding billings, cash reserves, and how much net profit you’re earning.
Once you understand what the numbers are telling you, you can take action to improve underperforming or weak areas in your business. Using the data from past performance, you now have the information you need to develop an annual budget and begin to manage the business against the budget. Along with creating cash flow projections, this will show you how much business and revenue you need to acquire in order to meet your profit goal for the year, as well as help you to maintain better control over billings and expenses and smooth over the peaks and valleys in cash on hand. The more you work with and track the numbers, the more confidence you will gain in using them to guide your decision-making.
In my experience, once reluctant designers have had the financials explained to them in a way they can relate to, those numbers become a revelation. They suddenly understand why they are working so hard and earning so little money or why they could earn more by adding staff. Like a blindfolded driver speeding down a highway, they realize that it’s not the numbers but the not-knowing that’s really scary.