Entrepreneurs Need To Teach Their People About Money

I’ve been writing about how entrepreneurs raise capital and manage money for several years. In all that time, while I’ve focused on how to handle investors, how to understand the cost of money, how to monetize your magic, I’ve failed to discuss the single most important thing entrepreneurs should do.

Teach your people about money.

How you make it. How you waste it. How you replicate it. How much it costs when you’re waiting on payments. How much they cost you when they sign up for SaaS subscriptions that nobody is using. The list is endless.

Many entrepreneurs focus on educating themselves on better financial management. And certainly, you need to find a good finance manager, great financial advisors, and even better accountants. But your ability to make money, make a profit and keep it, starts with the people on your team. And unfortunately, sometimes it ends there. Literally.

It is especially important when you begin to scale rapidly because suddenly other people are spending your money.

Years ago my boss, Chris Coleman, had a section in our employee handbook that said, “Spend our money as if it were your own.”

It is crucial for your people to understand this idea, because their raises, their shiny new monitors, or their new direct report's wages are riding on them taking this position when they are spending the company’s money.

How you earn revenue

As a founder, you are close to the sales of your organization. You likely review reports, and you may still be informing proposals and pricing. But don’t mistake your intimacy with your sources of revenue for your team’s understanding.

The Pareto principle—the 80/20 rule—is real. 20 percent of your customers generate 80 percent of your revenue. Do you people know who that 20 percent is? If so, fantastic.

However, knowing is not enough.

Do your people focus their efforts, activity, evangelism, and love on the most important 20 percent? It’s too easy to get caught up in activity, particularly in rapid growth, and forget to “dance with the ones who brung ‘ya.” Make sure your people know who to dance with, and if they’re no good at it, send them to Fred Astaire’s Dance School.

How you make a profit

If you’re scaling your business with entry-level talent, they may not know what profit is, or how different revenue and profit are.

For one thing, they may not be privy to your detailed expenditures or cost of goods sold.

They created a “need to know basis” for a reason, and you don’t have to share your financials with everyone, but you do need to ensure that your people know the things that lead to profit.

These things could be lowering your cost of sales or shortening your sales cycle. It could be as simple as explaining how long you need to retain a customer before they “break even.”

Are you making sure people focus on retention? You could be super direct and tell them your most profitable clients or vertical markets and have them focus their attention there.

Teaching people about money and ensuring that everyone focuses on securing revenue and maintaining profit doesn’t require everyone to get a finance degree. They don’t even have to attend a course if you are communicating the things that matter and measuring their performance to drive more of the profitable activities.

How you keep money

I’ve written stories about entrepreneurs who go crazy with an office build out. Or, you may begin catering lunches or putting in Kegerators to keep people engaged. Do your people know what those things cost? Do they have spending caps? Do they care that they have spending caps? Well, what are you going to do about that? I’ll share one with you. We had been using FreeConferenceCall.com, and last year the team decided they each needed their own dedicated number, so they weren’t having to share numbers or have conflicts when scheduling our conference lines. It sounded totally reasonable.

We got our key people dedicated conference lines, they loved it, and you know what happened? Our monthly conference expenses started coming it at $700 a month. We went from $0 annually to what was about to be $8,400 annually. Not good. We’re not doing that anymore, and they didn’t like the change to an alternative, but the costs were prohibitive. Know what is cost-prohibitive and explain it to your people.

What your money costs

The cost of money has always been hard to explain. When someone hasn’t run a business, they haven’t had to take a dollar and pay recruiter’s fees on it, commissions on it, overhead on it, carrying interest on it, or taxes on it. They just think a dollar is a dollar. It isn’t.

Help your people understand why you may mark-up certain costs you pay in advance. Help them understand why you may charge interest to a customer who chronically pays late. Help them understand why you’re willing to call a customer to collect if they’re not because excess receivables cost interest and are a sign of weak financials—both in real life and in the eyes of the bank which extends you credit.

This probably isn’t the type of article you typically turn to Forbes for. It may seem too obvious. However, sit down with your employees and ask them how you make money, how you make a profit, how you keep money and what your money costs? The answers may surprise you. You may find that this was one of the best things you’ve read all year. That is if you do something with the information. 


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