Why It Pays Big To Think Like A CFO In Your Business

A Chief Financial Officer (CFO) is the right-hand person to the CEO in the business. A CEO relies heavily on the CFO's financial advice and does typically not make any impactful decisions until she's considered her CFO's input.  

When you are the CEO of your own business, you will have several types of accountants to work with. Your tax accountant will advise you of business taxes, and there will be an advisor for your business. This guidance is beneficial and often necessary, but if you don't understand what they are advising you with, how will you implement their advice?

When others offer financial advice on a business that you as the business owner needs to make, it's in your best interest to understand these decisions' financial ramifications. I always advise business owners to know their numbers and understand how their choices impact their bottom line.

If you are making decisions in your business without understanding how these decisions will affect your bottom line, you are essentially driving blindfolded. You need to know your business numbers to set your business up for success. It might sound intimidating, but with the right system in place, it's not too hard.

Here are the top benefits of knowing your business numbers:

1.    You understand the impact of revenue and expenses on your business

When you know your business numbers, you understand that your business's success does not lie in only the sales levels achieved. You need to ensure that you are making a profit in your business, which means your expenses will be less than what you are earning in sales. Smart CEOs understand that their business can't operate long term without profit.  

2.    You know your breakeven point

The success of your business is measured by each fiscal year. Each year your revenue and expenses get reset to zero. When you know your numbers, you'll learn how much you need to make in revenue to meet your financial obligations for that year, also known as your breakeven point. Every sale after that will be for-profit purposes.

3.    You understand what drives profit

When you know your numbers, you can identify which activities in the business are driving profits. If you are offering a highly profitable product or service, but you aren't promoting it enough, you will see that error and correct it. And conversely, if you are promoting a product that does not have high-profit margins, you'll see how it is not optimizing your bottom line. 

4.    You know where you can save money

You will have the ability to understand what factors drive up your business expenses and if any measures can be taken to save money on those expenses. 

For example, suppose your advertising spending is relatively high, but you don't see much value in return. In that case, you identify an issue that must be investigated further to see some cost-saving opportunities.

5.    It keeps you in business

You understand how the numbers are tied directly to the outcome of your business. Knowing your numbers will not only keep you in business for the long term, but it will allow you to make your business more profitable.

The bottom line is that there isn't an activity that doesn't impact your bottom line in business, whether it's directly or indirectly. Every choice you make in your business influences your business's financial potential, either positively or negatively. As a business owner, to be a successful business owner running a profitable business for the long-term, you need to know your numbers.