Why you need to overcome your fear of finances to grow your business
--
When it became obvious that the economic shutdown caused by the coronavirus would need to last more than a few weeks, like many business owners, I immediately knew it would have a major financial impact on Doyenne.
But unlike a lot of business owners, I felt a sense of calm about the whole situation, because I knew exactly where we stood financially. I knew what our worst-case-scenario looked like—with a few clicks inside my financial software, I knew exactly how long Doyenne’s runway was even if we brought in no more new revenue in 2020. (Our runway is not infinite, but I’m confident that it will get us through this crisis — but that’s not the point of this article.)
Three years ago, I could not have done that.
During my first four years as Doyenne’s executive director, I was terrified of talking about our finances. Not because they were bad, but because I fundamentally didn’t understand how business accounting worked. I was comfortable running our daily operations with the help of our accountants at Fine Point Consulting, but when it came to talking about the big picture, I knew I was lost, and I didn’t want to admit it.
I would get full-on panic attacks before our board meetings because I had to present our Profit and Loss Statement (P&L) to the board. I would write myself a script so that I sounded like I knew what I was talking about, and I would leave the report for the end of the meeting to limit how much time we could spend on it. I dreaded board members’ questions because I thought they would see through my facade of having it all figured out.
Needless to say, this was not a great strategy for improving Doyenne’s financial foundation. It was a barrier to my effectiveness as a leader, and it was also a source of a ton of unnecessary stress.
I grew up thinking I was bad at math. I went to school to be a history teacher, but instead of getting to teach middle school social studies as I wanted, I kept getting thrown into math and science classes. At first I hated it, but as I watched my kids excel, I began to gain some confidence. I began to see myself as a person who could succeed in these male-dominated disciplines, but I still had a lot of fear around anything related to business or personal finances.
That fear carried into my first four years with Doyenne. It prevented me from educating myself or admitting how much I needed to learn.
But slowly, I overcame the fear and began asking my business partners to explain everything to me, starting from the basics, like how to read the P&L. It would have been impossible to do that without having first established a trusting relationship with our banker and our accountant, not to mention my co-founder.
Once I learned more about finances, it was incredibly eye-opening. I had no idea how much I’d been missing out on. It was as if I had been trying to run the organization while only ever looking one foot in front of my face. Now I could see for a mile in every direction.
I was ashamed to admit how little I knew about finances because I thought I was alone. I thought everyone else understood these things. But what I have realized in my many conversations with businesses around Wisconsin since the pandemic hit, is that it is far more common than I thought for business owners to be limping along in their financial literacy.
First up, if this is you, know that I feel you, and I have zero judgment. I was exactly where you are until about three years ago.
It’s not a coincidence that many women are afraid to learn about finances, even when they are brave and fearless in other ways.
Society has taught us not to see ourselves as people who are capable of understanding finances, working in finance, or making big financial decisions. Even when women succeed financially, we don’t see ourselves as investors. Compared to men, women are more likely to give to charity than men, and way less likely to invest their money (in the stock market or anywhere else).
Learning the basics of business finance is approximately as difficult as — if not way easier than — learning the basics of baking sourdough bread or growing houseplants or any other quarantine hobby you’ve picked up.
Finance isn’t hard. But to get started, you have to overcome your fear. You have to believe that you belong in a financial role. And if you’re running a business, you are already in a financial role.
The absolute best thing you can do to set your business up for success after these extreme physical distancing measures end is to fill in all of the knowledge gaps related to finance that you’ve been hiding and running away from.
It’s not enough to hire an accountant and leave all the “financial” stuff to them. Because while an accountant will make sure your business doesn’t break any laws, they can’t make strategic decisions about how you will adapt to stay in business over the next three months when most of your normal revenue sources have suddenly dried up. You are the only one who can make those decisions, and the only way to make good decisions during this time is to have all of the data in front of you. You can’t afford to delegate the fundamental understanding of your financial position to someone else.
Now that I understand finances better, I can make big decisions that guide our future based on all of the pertinent data. I can look at all of our revenue sources and identify which ones are performing better or worse than expected. I can calculate our runway given our current expenses, and I know what changes I could make to extend that runway, if necessary. I know exactly when I need to start considering those changes.
And because of that greater understanding, my stress level is much lower than it was a few years ago. I can talk to my board about our financial performance from quarter to quarter without fear, even if our results in a quarter don’t meet our expectations.
Here’s a short list of terms and concepts you should master and be able to calculate within a few minutes at any given time:
Churn rate: The total of your monthly expenses
Cash flow: How much money is coming in, how much money is going out
Monthly revenue: Break out all of your revenue streams and take a hard look at how much money each one brings in each month
Runway: How long you can afford to cover your monthly expenses at your current revenue (and it can help to create a matrix to plot out how much runway you have given a few different levels of revenue). We hosted a great Iso-Learning program about runway projections and how to use a handy-dandy spreadsheet to help with this.
P&L Statement: This one is the most technical, but it’s very helpful. It’s a quarterly breakdown of your business’s ability to make a profit, and helps you understand whether you need to cut expenses, increase revenue, or both in order to meet your goals.
Cost per unit: Even if you are a service business, you can calculate the per unit cost of your most basic services. How much does it cost you (in labor, materials, infrastructure costs, etc.) to make one unit of your core product, or to provide a type of service to one customer?
If you intend to scale your business beyond the level that you can self-fund, you’ll also need to get familiar with all of the terms related to investment capital, such as the difference between an angel investor and a venture capitalist, the different types of equity available, debt financing, and which ones are appropriate for which type of startup.
The internet is full of resources to help you understand anything you ever wanted to know about business finance. The most basic advice I have is to write down every term you encounter that you don’t fully understand, and dedicate some time each week to Googling those terms. If you can’t find the answers online, ask for help from someone you trust (this is where it’s incredibly helpful to have a good relationship with your banker and your accountant).
A few helpful resources you can start with:
At Doyenne, we always strive to make our programs safe spaces where women can ask any question. One of my favorite moments from early in Doyenne’s life was during one of the first workshops we did. My co-founder, Amy, kept talking about the “MVP,” and I couldn’t understand what she was talking about. Finally, I raised my hand and said, “Why are you talking about the Most Valuable Player?” I’d never heard the term MVP in a business context and didn’t know that it meant “minimum viable product.” Other people in the room thought I was taking one for the team by asking, but I genuinely didn’t know. And I felt safe asking, even though it was clear Amy assumed everyone in the room knew what it meant.
I would also like to note that the term “Financial Literacy” doesn’t mean “How to use Quickbooks.” I see Quickbooks being thrown around as the answer to everything, and it’s not. Quickbooks is a tool for managing your financials, not a silver bullet. Depending on where you’re at within your business, you may not even need Quickbooks, yet. If you’re in a growth stage or—as we all are right now—planning to pivot, I suggest looking into LivePlan as a tool to help with developing new strategies and financial projections.
If fear or shame is making you move financial literacy to the bottom of your to-do list again and again, I encourage you to push through it. You are not alone in your fear, but the reward for overcoming it is tremendous.
And once you gain confidence thinking about money, start talking about it! Let’s break this stupid stigma that makes women think we don’t belong in the world of finance. We absolutely do, and it’s crucial that we develop financial literacy if we want to build scalable and sustainable businesses.
