Why the numbers are often not given sufficient management focus in creative businesses – and how the first step to using them to your advantage is a change in mindset
October 28th 2009
By Greg Orme
On a stiflingly hot summer afternoon in July 1999 I sat in an airless classroom near Regent's Park trying
to figure out why balance sheets actually balance. I had been advised to enrol for a financial foundation course in preparation for a two-year MBA at London Business School. After ten years as a media luvvie I needed to reach some sort of parity in financial understanding with my prospective MBA classmates - many city whiz kids and qualified accountants.
At the time I was a Channel Five News programme editor entrusted with delivering a chunk of primetime TV every evening. As an operational guy the business of TV production - that dark art which paid my salary each month – was not on the agenda for me or my immediate bosses. The only numbers which concerned us were viewing figures and when our budget got cut.
Ten years later, an important part of Kirkbright’s mission is to help creative business leaders understand the critical importance of financial numbers, and so be able to add significant value to their businesses. Many of our clients come from a distinctly non-numbers/non-business educational background. They gave up maths with a sigh of relief aged sixteen and embarked on a life full of the rewards of metaphor, narrative, and beauty. Because we understand where they are coming from we are able to help them transform their relationship with numbers. The first step in that journey is a change in attitude.
Just to clarify - we’re not talking about a detailed understanding of accounting terminology or grasping the intricacies of double entry book keeping. That technical knowledge can be gleaned from books, a management development course - or simply by asking lots of questions. This is a change in mindset, to develop a new approach to the role numbers should play in our life as a creative business leader. This first attitudinal step is from fearful disdain to enthusiastic inquiry. If that seems unlikely, or even impossible here are some of the insights which helped me to change my mindset:
1. Measuring won’t kill the magic. All the creative businesses we advise conjure value through the magical process of great people coming up with great ideas. They sometimes fear they will kill this magic if it is sullied by applying a financial view. But measuring the financial inputs and outputs of that process to ensure we are making good margins does not mean we are going over to the dark side of grey suits and bean counters. These things can live very happily together and greatly benefit each other. And if you are a lifestyle business financial awareness will help you ensure you can do what you love next year as well as this. If you have a commercial end goal in mind such as trade sale it’s even more important.
2. Delegate financial management – but don’t abdicate from your role as financial decision-maker. If you are your businesses’ recognised leader you own the numbers – just live with that. That’s still true even if you also play a significant creative role. Accountants can prepare your financials but they are not there to lead strategy which is always underpinned by clear financial goals. Assuming this financial leadership is more important in our tougher economic environment than ever before. It is a tragedy there are creative companies going bust right now that could avoid it if the owner/manager had a better handle on cash flow. That old saying is well known for a reason: revenue is vanity, profit is sanity, cash is reality.
3. Don’t live in the past. A London Business School colleague of mine was fond of saying: “accountants roam the battlefield after the fight is over, counting the dead [and stabbing the wounded – really!]”. The rather graphic point he was making is that accounting statements are essentially backward looking. They record history. As a business manager you need to understand the lessons of the past as a foundation for charting a course to the future using forward-looking forecasts (normally generated by you).
4. Make your financial dashboard as unique as the rest of your business. Be proactive about what you want to see in your monthly financials – don’t just settle for what your accountant or Financial Director serves up. To do this you need to go beyond the normal Holy Trinity of the profit & loss, balance sheet and cash flow statement to other KPIs (Key Performance Indicators) for your business which will be both financial and operational.
5. Transform fear into respect. Financial numbers are not 100% truth and scientific “fact”. The selection and presentation of them is subjective and as much art as science. Digging down to the important “facts” is your job as business manager. When you are presented with a set of accounts (especially your own!) you should assume the persona of a sharp-witted detective sniffing out the unstated assumptions.
6. Numbers are your friend. At a basic level profit figures help you “keep score” on the effectiveness of your creative business aside from other factors like client satisfaction, the size of your team and industry awards. Used in the right way financial information is also a powerful tool. It can help you to understand your business better, become more profitable, better manage your people and raise money when you need to – what’s not to like!
Copyright © October 2009 Kirkbright Ltd All Rights Reserved
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