Financial Leadership

The CFO contacted me last night and wanted to get about 5 min this morning at our annual sales meeting.  

The meeting begins – she steps to take her 5 minutes. All 10 salespeople in the meeting roll their eyes.  She starts by saying, “I would like to commend all of you for growing our top line revenue this year by 15%. However, our net profit margin decreased by 16%, and we ended the year at a loss.  I would like you to be more vigilant in the pricing of your deals to strengthen our margins and return to a profitable business.  Any questions?”  Dead silence.  “Hearing none, thank you for your time,” and she leaves.  All eyes are on the SVP of Sales. Then one brave person raises their hand and says, “what the hell was that? I have no idea what she was talking about other than the compliment she gave us.”  The SVP of sales responds, “let’s get back to our agenda and look at ways of finding new customers.”  

Does this sound familiar?  Why? There are a couple of reasons.  First, the CFO is speaking in the foreign language of accounting – not plain English – and she cannot translate accounting speak into English.  Second, accounting has an image problem for non-accountants. It’s an image (or better yet, memory) of pages of mind-numbing numbers that make no sense, leading to ‘listener shut-down; creating a phenomenon that, in turn, leads to a lack of financial acumen within your organization.

So, what is the antidote to this mind-numbing issue?  Leadership.  When searching the internet looking for keywords as it relates to the topic of leadership, you will find the following: confidence, charismatic, motivation, success, inspiring, trust, vision, influence, people, accountability, courage, humor, respectable, and making good decisions, to name a few.  I agree with all of these, except that there is one missing – financially responsible in every list I researched. 

The best and most effective leaders have a good working knowledge of the company’s financial health, and their decision-making process is established in the organization’s financial truths. Armed with this financial acumen, the effective leader can influence decision-making by conveying the tactical connection between the mission statement and the financial statements. 
Let me pause for a moment and stress that this financial acumen is not the CFO’s sole responsibility.  It is the responsibility of everyone who is in a leadership role within the company. Financial acumen should be the basis of understanding in every business conversation and decision made within an organization.  

Think about it this way, who are the people in your organization that is making decisions?  How many decisions are made every single day in an organization? What percentage of those decisions have a financial impact on the organization? 75%? 80% 100%?  There are leaders within organizations that don’t understand accounting and finance fundamentals—for example, the lending department within a bank. Lenders are the salespeople of the bank. They’re responsible for generating deals for customers so that they can lend money to them and grow the bank’s business.  We all know that – right.

However, these lenders can earn a bonus on the cumulative dollar amount that they lend.  Do you see what is missing here?  You are incentivizing the lenders on revenue generation and not profitability.  This is and has been a recipe for loss in profitability.  What is missing is taking into consideration the loan costs. 

I hear stories from CFO’s about how the sales team needs to grow their business by 25%, and yet in the process, they lose 15% in profits.  In my interview with Ken “Mr. Biz” Wentworth, he calls this phenonium ‘the silent killer’ to all businesses.  He shares a story of one of his construction clients wanting him to review a bid on a new piece of business.  After reviewing, he advised the client not to bid on the work at that price and raise the price by 25%.  The pushback from the owner was that they needed to bid low so they could get the job. Ken, knowing the cost structure of his client’s business, responded, “You can bid the job at the lower price, AND you will lose $40,000 on this job.” The owner replied, “I am bidding it low to get my foot in the door for future work.” Let’s stop right here. We all know that is a falsehood because when the owner asks for a bid on another project and we give our full-pricing structure, what do you think the owner will do? That’s right. Find someone cheaper. I have used that strategy in the past, and it hurt my business.  

The silent killer of a business is not understanding the fundamentals of accounting and finance. We need this understanding and knowledge to make more informed, smarter, and more profitable decisions. If you understand accounting, you can understand finance. If you understand finance, you can understand your business.

When your leaders are in meetings and the conversation shifts from operations to finance, are your leaders participating in the conversation or just witnessing the conversation?

The solution is leadership.  Financial leadership.  The next time you have your leadership team participate in a leadership development program, add a day of accounting and finance fundamentals.  Oh, I know…. I can see all of your bitter Grinch faces.  You are thinking, an accounting course.  Oh, hell no!  I’d rather have a root canal without any novocaine than sit through a full day of an accounting and finance course.  This goes back to the image problem accounting has – and it’s a big image problem!  And it exists because of the traditional way of teaching accounting to non-accountants in the same way we teach accounting to accountants.  That’s like teaching any subject in a foreign language that the students do not understand – it’s impossible to learn!

We need to teach accounting and finance to non-financial leaders in a different way.  We are not trying to turn them into accountants but rather into leaders with financial acumen.  We want to help them gain access to critical knowledge in a manner that removes the complexity of accounting/financial jargon and teaches in plain English.

The solution to this puzzle is a product that is offered by the company Wealthvox.  The product is accounting and finance fundamentals powered by Color Accounting.  Color Accounting is a learning approach that makes accounting simple. The courses deliver real financial literacy quickly and effectively. Accounting and finance often feel confusing because people can’t see how the numbers work or understand the language. Color accounting fixes both issues by approaching the subject visually.
 
This unique, visual framework enables us to use simple concepts to explain the mechanics of accounting and the structure of financial information. The language of accounting is then brought to life with logical and intuitive examples.
 
All of this is achieved interactively and engagingly, enabling you to build a holistic understanding of how financial information tells a business story.
 
The really cool aspect of color accounting is that it is delivered without the use of PowerPoint.  That’s right, no PowerPoint numbing slides.  It is delivered visually using flip charts or whiteboards and hands-on materials that include a manual and a pop-up board.
 
After a six-hour workshop, you will be empowered to:

  • Analyze and interpret financial information with more confidence
  • Understand the story of a business using key financial metrics
  • Understand the relevance of key profit measures such as EBITDA
  • Engage confidently in internal financial conversations
  • Improve communications with clients, customers, and colleagues
  • Understand the financial process in your business
  • Improve financial decision-making in your business
  • Manage profits and cash flow more efficiently.
  • Price your products and services more profitability
  • And more. 

 
The results are remarkable. Westinghouse is a client of Color Accounting, and before the pandemic, Color Accounting delivered over 30 workshops to their leaders, project managers, and engineers.  I had the privilege of leading one of these workshops in January 2020 to a group of 24 project managers and engineers. By the end of the full six-hour workshop, this group had a greater understanding of their role within this large organization and the financial impact on the wealth and bottom line of the organization.  As this group left, they were all thanking me for the engaging and thought-provoking workshop and that their mindset towards accounting had become completely different.  
 
There is a case study that Wealthvox has written, and here is a small portion of that case study:
 
At this point, we delved into a section explaining the differences between the two M’s – gross margin percentages and markup percentages. 
 
A margin is sales minus the cost of goods sold. A markup is an amount by which the cost of a product is increased. I explained that when you apply the markup percentage, that will give you the resulting but lower margin percentage.
 
The MD of Home Chefs, Rupert, turned white. He held his head in his hands and asked us for an example. To clarify, we applied a hypothetical scenario. If a Home Chefs’ dinner for four is £100 minus costs of £25, there is a margin of £75. This is a margin percentage of 75% but a markup of 300%.
 
Rupert sighed and said: “This explains a lot. We haven’t been getting the profitability that we wanted, and this is why!” His company had been trying to achieve a 10% margin when they were, in fact applying a 10% markup. He went on to express that he’d had an uneasy feeling. He knew something wasn’t right but didn’t know what was wrong. The problem with applying the 10% markup is that you actually end up with a margin of 9.1%. To achieve a 10% margin, the markup percentage needs to be 11.1%.
 
Rupert couldn’t believe that he’d mixed up something seemingly so simple, yet in fact, crucial.
 
One final example came about when I explained Color Accounting to a colleague who has a successful speaking and coaching business. The response back to me was, “I don’t understand accounting. I don’t like numbers. Never have. You will never get me to take an accounting course. I have run my business for 15 years, and it is very successful, and I have large to medium size clients.” So, I made this person a deal, take this course, and after six hours, if you are still lost, I will refund your money and add 10% more for wasting your time.  DEAL!
 
We broke the learning into 2-hour chunks over three weeks, and it was delivered live using Zoom.  Before starting the second week’s class, I ask if there were any questions or comments. My client commented, “Every morning this past week, I have woken up thinking about my balance sheet.” By the end of the class, my colleague could read and understand the balance sheet and the income statement AND was not afraid of accounting.” We are continuing this conversation because now my colleague is asking better questions about the business, starting with, are my products and services priced correctly? What are my expenses, and are some of my expenses non-productive and should be eliminated to increase my overall wealth and profitability?
 
When you switch the accounting and financial light bulb on and include it as part of leadership development, your leaders will make better business decisions because their business acumen has been fully achieved.  Business acumen is built on a foundation of accounting acumen, plus financial acumen, and every leader should strive for this excellence.
 
If you would like to learn more about the Color Accounting process, please contact me at peter@petermargaritis.com.

Four Questions Every Effective Leader Needs to Answer

As 2020 is coming to a close (good riddance), I have decided it is time to start writing my next book. Instead of blogging, or writing it in a quiet place, I have decided to write it through my podcast. A new and untraditional approach to writing a book.  You, my audience, will get a sneak preview of the content and can send me comments, suggestions, and ideas for the book.  Kind of a crowdsourcing approach.  There are two working titles to the book: Improv for the C-Suite and Leadership in Hyperdrive Powered by Improv.  My first call out to you is which of the two do you like?  Send me an email at peter@petermargaritis.com on the title you like the best. 

Over the past two years, I have been doing much research on the topic of improvisational leadership. I have curated 43 articles, 23 books, and 23 YouTube videos based on improv or improv leadership characteristic references. In the book “Getting to YES AND” by Bob Kulman, he discusses that effective leaders can answer four questions about themselves – Why this? Why now? What do I have to do? What’s in it for me? Bob discusses these four questions as if he was to bring the tenets of improvisation into his firm. I will answer those four questions and frame my answers as to – why you should consider bringing improv into your organization.

Why this? 

Improv is where strategy & planning meet implementation. Improvisation is a communication-based technique that requires leaders to be present and, in the moment, to listen as the business depends on it, to respond honestly, put other’s thoughts and needs ahead of theirs, and adapt to the unexpected challenges and opportunities.

Improvisational communication lets the leader focus on the things they have control over and ignore the things they have no control over. This helps the leader to be able to have clarity during chaotic times. By doing so, your brain will slow down to focus on the details, the context, and subtext of the conversation to guarantee nothing is missed. The principles of improvisation are respect, trust, support, listen, focus, adapt, and maintain the Yes And mindset.

Improvisation is all about reacting and adapting to a changing landscape by accurately assessing a given situation’s needs, which allows the conversation to move forward in a positive new direction. Improvisation is about building stronger teams, being creative and innovative, collaborate with others, negotiate from a place of win-win, highly focused during times of stress, setting your ego aside for the good of the organization and others, demonstrating empathy, and being very comfortable with the uncomfortable. Improvisation strengthens the leader’s emotional intelligence and their interpersonal skills.

Why now? 

I am writing this book during the COVID-19 global pandemic. If there ever was a time to adopt the improviser’s mindset, it is now. Change is happening all the time – change is either imposed or designed. Leaders need to be adaptable, collaborative, creative, innovative, and embrace risk.  

Embracing risk is not punitive to those who come up with the ideas; it celebrates those ideas even when they F.A.I.L – First Attempt In Learning. If you don’t allow your team to FAIL and punish them for taking a risk, it will take you longer to solve the problem because everyone is living in fear of being punished. Give you team the freedom to fail and watch them grow.

Showing vulnerability as a leader makes them relatable and human. Your leadership inspires your team to become vulnerable and requires the team to set aside their ego for the organization’s good.  The improvisational philosophy is not the 1950s – 1990s leadership, “I will tell you what to do” leadership style.  It is the collaborative and inclusive leadership style that focuses on the team, and not themselves.

Improvisational leadership provides phycological safety to the team. In the article titled “The Five Keys to a Successful Google team” phycological safety is defined as – the ability to speak your mind and feel safe taking risks in front of each other. Google feels “far and away” that phycological safety is most important dynamic behind a successful team  

It is also the exact opposite of the traditional methods of learning and development.  Sitting in a classroom being lectured to for hours upon hours does not increase retention. It increases boredom. It is just a mind mind-numbing data dump of facts, figures, and content that is uninspiring.  We have lost the motivation to engage the audience to action.  When you take the improviser’s mindset, we turn the content into stories, analogies, and metaphors so the audience will pay attention, which increases retention. This is the reason I wrote the book “Taking the Numb Out of Numbers.”

Change is a constant. You can either lead change, follow change, or ignore change.  Leading change gives you a voice in the conversation. Following change allows you to be a witness in the conversation. Ignoring change will lead to unemployment. Which do you prefer?

What do I have to do? 

Leaders need to learn to live in the moment and become engaging with their team. Improvisation helps in building and maintaining relationships while strengthening their focus. Do you have the ability to park your ego and to suspend judgment? If not, give it a try.  Think of it this way – naturally cross your over your chest.  Now cross them the opposite way.  Uncomfortable right? Of course, it is AND if you began crossing your arms differently, at some point it will be comfortable.  That is exactly what change feel like.   Uncomfortable at first AND you will get comfortable with the uncomfortable.

Be respectful, be trustworthy, and provide support to others. Influential leaders are better communicators because they “listen to understand,” not “listen to respond.” Empathize with your team and be more vulnerable. Embrace the principles of improvisation into your leadership style and the way you live your life. This sounds simple, and it takes work. Here is an analogy that I have used when taking on large tasks, “How do you eat an elephant? One bite at a time!  Practice improvisational leadership every day and watch your team respond positively and become more productive. The best thing is that it doesn’t cost a thing other than changing your mindset to an improviser’s mindset. 

What’s in it for me?

There is a lot in it for you, as the leader—more tremendous respect from your team and others in the organization. You will be the improviser/leader that everyone admires and wants to work with. I have never felt that people work for a leader, that is, a boss. 

Today’s leadership demands more collaboration, less “it’s all about me” approach.  You may have the authority and the power, and that is not leadership. Leadership is the POSITIVE effect you have on another person – Simon Sinek. When you adopt that mindset, you teach everyone in your organization that they are all leaders, no matter the title. Create a culture that inspires others to action, and your influence will be contagious to all. Ask for bad ideas because in the world of improv, “bad ideas are bridges to good ideas – no ideas lead to nothing.” Show that your idea is the setup, not the end solution.  Involve your employees in decision-making, problem-solving, and strategy.  Listen to their ideas, their issues, listen to their feelings with empathy.  Increase your emotional intelligence, along with your teams. Don’t be afraid.  By doing so, your turnover will reduce, engagement will increase, problem-solving with require less time, and your bottom line with grow in ways you could ever imagine.    

Join me on this journey of writing my next book through the vehicle of my podcast.  If you would like to be in this next book on improvisational leadership, please submit stories to me about your improvisational leadership at peter@petermargaritis.com and if I use them in the book, you will receive a free autographed copy once it is published. 

Faster Meetings Mean Better Meetings

37072Who among us loves long, drawn-out meetings? No one. Yet somehow the people managing meetings seem to think that longer must mean more productive. I am on the side of less is more.  Here are my tips on how to make meetings shorter and get better results, and they center around the planning process.

Have a specific agenda that includes key discussion points.

•  Send out the agenda in advance so attendees know what to expect.

• Start on time, end on time. It’s really just another discipline.

• Anything off topic is discussed later.

• Anything that is does not involve all meeting attendees is discussed later.

• If appropriate, ask subject experts to provide necessary information to the group.

• Set a timeframe for each discussion point.

• Allow a specific time for Q&A. Any topics that cannot be answered are passed on to whoever can give the answer.

This article offers 6 Ways to Make Meetings Go Faster. Personnally, I like the last way: don’t schedule a meeting at all!  Time is so valuable that without a specific purpose, meetings can be more habit than productive.

 

 

 

Worth A Second Look

Ringing-doorbellThere are so many good books out there that I haven’t read yet that it’s a difficult decision for me to re-read a book. The Ten Faces of Innovation by Tom Kelley is definitely worth a first and even a second read!  Kelley runs IDEO, a design and innovation consulting firm that does remarkable work. One chapter in the book resonated with me: “The Doorbell Effect” talks about waiting…the pain, disappointment and confusion created when a service business forces customers to wait.

Kelley’s analogy is when you walk up to a door and ring the bell you have no idea what is happening on the other side.  Are they home? Are they hiding from you? You just wait until someone else makes a move. How does that apply to your business?

To me, communication – both internal and external – is the virtual Doorbell that either allows a firm to move forward or holds them back. Within your company, poor communication can create confusion, poor business practices and high staff turnover. Unless the firm’s leadership takes control of communication, the staff works according to their own priorities, manages clients as they choose and fails to support the mission of the firm.

Take that further and develop a standard for communicating with clients. How your staff treats clients is part of your company’s culture. Let me tell you a story that makes my point.

Recently a friend told me about her accountant, rather her former accountant. They didn’t return calls on a timely basis, ever. She asked for their thoughts on her business accounting processes, but didn’t get a response. She asked again, leaving a very specific message…nothing. She “rang the doorbell” four times, and nothing. So she took her business elsewhere.  She fired her old accounting firm by email (because they didn’t return her calls), telling them that they clearly didn’t value her business or her time.  Guess what. They never reached out see if they could save the relationship.

Eliminate “The Doorbell Effect” by creating best practices focused on client communication. Keep clients aware of the process for their project upfront. Will it take days, weeks, months…how many? How frequently will  you update them on progress?  Is it okay for them to call you with questions?  Never leave clients in the dark.  Set up a standard, develop the process and hold everyone in the firm to it.

Firms that commit to excellent communication are more likely to retain clients and improve referrals. It takes effort and a commitment to communicating with staff and clients

Short, Sweet & To the Point

images 4.16.36 PMHow does your firm handle internal communication? If you currently use or are thinking of using conference calls, maybe it’s time to reconsider.

One idea out there is to take a Twitter-like approach to calls and meetings – keep it short, to the point and relevent. 140 characters may not work but these ideas might help:

  • Always have an agenda and keep to it
  • Set ground rules for asking questions, changing topics, adding comments
  • Ask participants to prepare in advance on specific topics
  • Stay on task and on time – most meetings meet their expiration at 1 hour

Maybe the best advise is to reconsider having that meeting or conference call. If the meeting doesn’t solve a problem or improve a situation, why have it at all?

There’s a good article on this topic, “Why Conference Calls Should be More Like Twitter” from the Incidental Economist. Maybe short and sweet could work for you. Take a quick read and see if it doesn’t influence how you manage conference calls and group communication.