Does the thought of digging into the financials of a business make you uneasy? Do you shy away from the responsibilities of looking at the numbers?
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Today we are talking about why financial knowledge is needed for Directors of Operations (DOO).
Why Financial Knowledge is Needed
We talked a bit in episode 75 about the benefit of being able to see the financials of the business you are working in. With this knowledge you are able be a strategic partner in their business. It is key for you to have access to that information, so if you run into a leader that doesn’t want to share that with you, that is an issue.
I also know that one of the greatest fears of becoming a DOO is financial knowledge. Most often, this is the area that people feel the least competent in. I know, because it was my fear once upon a time… I made it a much bigger deal than it was. I want to share the importance of getting to know the numbers, and what your role is with those financials as a DOO.
Strategic Partnership
Why does the DOO need to be able to read these financial reports and have a bit of financial knowledge? Well, because you are the guide for the business and money will rule decisions. To make fact based decisions, you need to see the data. You will need to see the numbers and look at the trends that are happening. This allows you to be a strategic partner.
Also, one of the things that leaders/visionaries tend to ignore are the financials. And as Jenni Davis points out, leaders sometimes feel successful in this area, but they are really only doing bank balance accounting… meaning they are only looking at what is in the bank. This is a huge mistake. Somebody needs to be tracking the trends because your leader likely won’t be giving financials any attention.
Compliance
As a DOO you will need to keep track of compliance, meaning they need to pay their taxes on a quarterly basis. You are the one who will help them make sure their taxes are done and up to date. You will need to see the financial statements each month, and hopefully the business will also have a bookkeeper on staff. Your best bet will be to partner with the bookkeeper, so you will be able to understand the trends and how you can help the leader to strategically make better decisions.
Understand Trends and Patterns
The profit and loss and the cash flow statements are actually very simple. By looking at these you will be able to tell the financial health of the business. You’ll be able to read the reports, give them guidance and understand what is happening in the business. What are the spending habits of the leader you have? This is your time to give them wise counsel about next best steps. Avoid looking back and criticizing, but use the data from the past to help you make decisions in the future.
Make notes of opportunities, successes or patterns. If you have an increased profit margin, make sure to celebrate and note what led to that. You want to understand the patterns that are taking place and this will give you incredible confidence in your communications.
“When you become comfortable talking about financials you will see how easy it is to create strategies… and your value will skyrocket.”
How Often?
I like to have monthly financial meetings. It may be me speaking with the bookkeeper and taking the information back to the leader, or it might be a meeting with all 3 of us. This is a very private matter, and needs to be a safe space.
One of the non-negotiables should be a quarterly meeting with the bookkeeper, and the goal should be to find ways to improve the reporting. When you meet, take the time to give an update on the business. What has changed? You want to look product by product, and compare how much it costs you to sell it in relation to the other products you have.
“By looking product by product, it will tell you where you should be investing your time.”
Once you are aware of the financials, your job is to tell a story. It’s not to be a bookkeeper or accountant, it’s to tell a story.
Being open to understanding financial terminology and reports, and being coachable has huge dividends, and if you are going to be in a strategic role in a business, you cannot shy away from the financials!
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On a scale of 1-10, how comfortable are you with financials? Come and share in the Ops Insiders FB group.
Previous Episodes Mentioned
Episode 75: 4 Popular Models for a DOO Business
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