How to lead through numbers. Not by them

It is true that numbers don’t lie…but they don’t tell the complete story either. The best example is “Net Profit” on a Profit & Loss Statement. You can get all excited when you see a nice net profit – but having net profit doesn’t mean you have cash in the bank. You can check your bank balance – but that balance doesn’t reflect checks that were written but have yet to clear. If you understand how to read your Profit & Loss Statement, Balance Sheet and Statement of Cash Flows…and how all three reports work together…then you know they will tell you a more complete story. If you don’t, you’ll be making decisions on very incomplete data.

Numbers speak to people in different ways according to their depth of understanding about what those numbers mean. There are those “left brain”, analytical people that love to process every morsel of the story numbers tell – but this doesn’t guarantee that the story will be interpreted correctly. Likewise, there are those creative, “right brain” folks that just can’t stop their eyes from rolling back in their heads when looking at financial or analytical reports. For them, the story is a painful documentary on the origins of Algebra.

Because numbers communicate how your company and employees are performing, many leaders fall into the trap of leading by the numbers. Every meeting, every huddle, every memo and every one-on-one is about the numbers. As I stated above, not everyone can figure out what systems, skills, behaviors or approaches must change in order to move specific numbers in the right direction. As a result, frustration and stress can spread through a company’s culture.

Here are four no-compromise leadership strategies that will help you lead through the numbers – not by them:

1. Share the whole story: Numbers are like laser pointer dots. They illuminate one incredibly tiny piece of data, leaving the bulk of the story that created it untold. Yes, you want your productivity rate to improve…but why and where is it struggling now? You want profits to improve…but where and what are the potential profit leaks? Too many leaders throw out commands like, “Get your client retention rate up,” or, “Get your retail numbers up.” Without knowing the whole story, your commands may have your employees trying harder with a system or approach that simply doesn’t work. Slow down. Give your team the possible “why” and “how” behind a number that needs to improve.
2. Feed both brains: If your approach is to constantly hammer away at the numbers, you’re likely doing more damage than good. The right brains may understand the importance of a problem…but they don’t possess the creativity to figure out a solution to fix it. On the flip side, all the left brains hear when confronted with too much analytical talk is, “blah, blah, blah.” Both brains need to be fed a balanced diet of inspiration, motivation and celebration in order to digest and address the hard facts and data. Simply put, the left and right brain thinkers depend on each other to perform at their best and deliver the outcomes you seek. Put the numbers aside for bit and share where the company is going and how it’s going to get there. Celebrate the right behaviors that you observe. Celebrate the small wins because it’s the small wins that inspire the big wins.
3. Analysis paralysis: There may be numbers and reports that are important to you and only you. I’ve seen leaders sap the time energy of their managers and staff by having them compile daily/weekly/monthly reports that have little or no impact on performance. Even worse is when leaders don’t even look at, acknowledge or provide feedback on those “what the heck” reports. The key is to isolate and focus on a specific and limited set of critical numbers and move them in the right direction. Channeling your team’s efforts on three or four critical numbers can and will have a profound effect on performance and growth. Focusing on a laundry list of numbers creates dysfunction and stress.
4. Financial literacy: Profit and positive cash flow are outcomes that cannot be achieved in the vacuum of “I can’t control what I don’t understand.” I have long been a believer in the need for financial literacy at all levels of a company. It’s amazing what happens when everyone understands the impacts of driving revenue, controlling costs, eliminating waste and increasing productivity. The basic premise of open-book management is that if you want your people to think and make decisions like an owner…they need to understand your Profit & Loss Statement and Balance Sheet. I’m not suggesting that you call a meeting and pass your financials around the proverbial table. That doesn’t work. What I am suggesting is that you begin a process of teaching financial literacy to all team members and embed financial literacy into your company’s culture. Designing an open-book approach that fits your company is a process that takes time. Warning: Teaching financial literacy and going open book will force many leaders to “clean up” their act. If you don’t understand “clean up” your act…email me at neil@strategies.com and I’ll explain it.

Financial Literacy: Why I’m concerned

This Monday Morning Wake Up is for all leaders. It doesn’t matter how new, old, small or large your company is – financial literacy matters. Why? Because too many leaders think they can run profitable companies without paying attention to their financial reports. I’ve spent the past five months traveling across the United States doing presentations to owners and leaders that cannot answer the most critical … and simple … financial questions.

It’s not like I didn’t know this before, but this concentrated exposure and over 100 complimentary coaching calls by Strategies coaches and myself has red flags flying all over the place. Every owner and leader should be able to rattle off deadly accurate responses to: current year-to-date revenue (with service and retail percentages), payroll percentage, gross profit margin, general and administrative percentage and net profit. And only one out of ten could answer what percentage of goal their company is at for the current month. Translation: One out of ten do not do monthly projections or keep scoreboards. I don’t know about you, but this scares the heck out of me.

So here is my hit list of financial literacy non-negotiables:

• Learn how to read: Your Balance Sheet and Profit & Loss Statement tell the story of your leadership thinking and behavior. They tell if you’re paying attention to your company’s financial reality or putting your faith in the universe to keep your company financially viable. For 20 years, I’ve watched leaders at Strategies Incubator courses freak out when they finally learn what their financials have been trying to tell them. If you don’t know what every line item means on your Balance Sheet and Profit & Loss Statement, it’s time to make peace with your numbers. It’s time to stop making excuses and living in denial. No compromise.
• Get them – use them: Every Thursday for the past 20 years, our Strategies bookkeeper runs a complete set of financial reports. We pay attention to our critical numbers. We manage cash. This weekly practice has helped us navigate through financial challenges and keep the company rock solid in good times. In stark contrast, there are owners and leaders that barely glance at their financial reports – if they even read them at all. Financial reports are not optional. They represent your company in numbers. They tell the truth about your ability to lead a company. Get them – use them. No compromise.
• It’s about the Balance Sheet: The Balance Sheet tells how financially healthy your company is. It details the choices you have made about managing assets and debt. It tells what your company is worth. If that isn’t reason enough to learn and pay attention to your Balance Sheet, I’m at a loss because one day you need to slide it across the table to a potential buyer. Do you want all of your years of hard work to end up worthless when it’s time to sell? It’s about the Balance Sheet. No compromise.
• Micromanage cash: If you run your company out of your checkbook, you’re cruising for a financial bruising. There is a reason that “Cash” is the first line item on your Balance Sheet. Cash truly is king. Cash is confidence and security. Cash is sleep good at night money. If you do not have a Cash-Flow Plan that projects revenues and expenses, you are flying financially blind and will be unable to influence the numbers that end up on your Balance Sheet and Profit & Loss Statement. Micromanage cash. No compromise.
• Debt can kill: It is truly sobering to see how many companies are overburdened – even smothered – in debt. If your Balance Sheet has a list of multiple credit cards with balances due, you need to take immediate action. Strategies can help – talk to us about coaching your company back to financial daylight. If you’re in debt to the IRS, the clock is ticking. Get a handle on your company and set a plan in place to eliminate debt. No compromise.
• Wake up your accountant: I’ve seen too many lazy accountants that don’t pay attention to the financial health of a company simply because their leaders aren’t paying attention either. Just recently, a coaching client’s accountant wrote me and said, “Since no one was asking for or looking at reports, I didn’t supply them.” To me, that is unethical and irresponsible – and it’s more common than you think. I praise accountants that pay attention and work with leaders by analyzing and offering guidance on what their financial reports are telling them. If you have a lazy accountant, you need to wake up first – then fire him or her. No compromise.
• Open book shares the load: Growing a financially viable company is tough work. Owners and leaders cannot do it alone. Open-book management is an approach to doing business that shares the load by engaging employees in the process. I get that there are owners that just can’t fathom sharing any of their company’s financial realities with their employees. If you are one of them and like carrying 100% of the financial load and stress, go for it. At Strategies, my team obsesses over the numbers as much if not more than I do. We all work hard to push the numbers in the right direction. We keep nothing behind the curtain. Everyone takes ownership in the numbers. It’s a process. Learn how to be an open company. No compromise.

– – – – – – – – –

Please share your thoughts with me about today’s Monday Morning Wake-Up. Click above to comment.

Pass this e-mail on to your business colleagues, managers and friends. They’ll appreciate it.