We’re going to continue our series talking about the various hats an entrepreneur wears.
(From the CEO to the CSO, CMO, CFO, COO hat… We’re going to cover all of these.)
Today we’re on the CFO, the Chief Financial Officer. This is one of the most important operational hats in a business because a business’s goal is to make money.
I know you want to help people and do good, but if you’re not making money, pretty soon you have to stop running your business.
And what does the CFO actually do in a small business?
There are three key categories. We’ll focus on one in each individual video.
- Making sure that each business interaction is profitable and that your pricing is in the right area.
- Managing the current funds in the business (future blog post)
- Predicting and preparing for the future (future blog post)
But for today, we’ll talk and focus mostly on making sure that each business interaction is profitable.
This is the number one low-hanging fruit I see to make a business be successful or not successful.
Know Your Numbers To Master Your Business Model
It’s knowing your numbers.
If anyone has worked with me, I’ve probably said something to the effect of “if your business doesn’t work on paper, it doesn’t work in the real world.”
And so one of the CFO’s key jobs is seeing if your business works on paper.
- How much are you charging for a service?
- How much does it cost you to deliver that service?
- What does your profit margin look like?
- What are your total expenses in your business?
- And how many profits do you have to stack up from sold jobs to make that monthly requirement?
- And is that feasible from a sales goal perspective?
- And if not, how can you adjust and tweak various aspects on the way through?
Evaluate Completed Job Profitability
So there’s the “on paper” side of making sure that you look profitable.
And then there’s the step later, which is actually analyzing completed jobs and seeing if your predictive modeling actually matched the reality.
Did the materials actually run significantly higher than expected?
Did the labor run higher?
And so within that, you can start to modify and adapt your model so they’re more accurate.
The biggest thing is to notice where reality doesn’t match the “on paper” model.
You’d be surprised at the number of business owners who haven’t been able to master this part of their business and even make it work on paper.
The first step is to make it work on paper and THEN in the real world.
Getting back that data from completed jobs is what helps you become more accurate in your proftability analysis.
Applying The Information Learned From Analyzing Business Profitability
But if no one is monitoring that, then it’s easy in a business just to go and sell a lot of work, deliver a lot of work, look at the bank balance, and say, “Oh, why is there not very much money? What is going on?”
The CFO hat is key because they’re strategically analyzing this to find opportunities.
The sales side of the business can sometimes decide, “We want to sell cheaper because it’s easier to sell”.
The CFO is the one who might come in and determine, “I know you’d like to sell it for less expensive because it’s easier, but we need to sell it at this rate so we can actually make the required money to stay in business.” And now there will be some improved salesmanship requirements that may have to further developed.
This overarching analysis helps actually develop the other parts of the business as well.
It’s a key function of being a business owner.
How are you doing in your CFO hat?
Are you clear on your profit margins?
How is that looking in your business?
It is a non-negotiable important focus to know your numbers and master your business model.
Good luck.
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