CEOs face constant challenges, especially in the face of today’s financial state. A Reuters article on the state of small businesses reports that 93% are worried about the likelihood of the United State entering a recession in the next six months. With material costs, wage bills, and shipping costs increasing, modern business owners must be as economical as possible to survive. But what exactly does it mean to be financially savvy as a CEO?
Why Financial Knowledge is a Business Responsibility
As a business owner, chances are you already have an understanding of money and finance as you handle business funding, flows, and clients. In our piece ‘Your Turn at the Helm of the Start-Up Ship’, we highlight that 37% of companies fail due to running out of cash. However, business owners can significantly reduce this risk through a comprehensive business plan containing a financial section as one of its core components.
Of course, there’s always the option to rely on professional help from tax and accounting services, commercial banking segments, and others, especially as your business expands. However, gaining your own financial knowledge will allow you to become better at managing money, and better at understanding what exactly makes your business grow. Moreover, financial skills aren’t gained overnight — instead, they are learned habits.
Implementing Smart Budgeting
Budgeting doesn’t end in a business’ financial section. Smart budgeting should encompass a CEO’s business and personal endeavours. According to financial expert Vince Iannello, one needs to take into account expenses like rent, fees, and bills before allocating enough resources for other needs. Similarly, maintaining a good budgeting system will allow your company to balance expenses and income, and successfully reach its strategic goals.
Make Use of Credit Effectively
Sometimes businesses are eventually faced with cash flow difficulties. An article on hard credit checks by Upgraded Points explains that it determines how eligible you or your business is for obtaining help in the form of invoice financing or term loans. Maintaining a good credit score is essential to raising your chances of passing credit checks, which you can do by paying off bills and debts, and aiming for 30% credit utilisation.
Knowing What (or Who) to Invest In
There are so many investment options out there. Some place their money in a passive investment portfolio, while others place it in companies or technologies that they believe in. In a feature by Time Magazine, PayPal CEO Dan Schulman details how he started to invest in employees who were in financial crises. PayPal allowed them to own stock in the company, rolled out a financial literacy program, and improved healthcare benefits, therefore strengthening what he believed was the core of the company — the people.
Research on Competitors’ Financial Decisions
Another great way to learn is by watching your competitors. Last month, Ford Motor Co. CEO Jim Farley announced that he would forego traditional advertising for his company’s electric vehicles. This was after observing how Tesla Inc. still dominated the US market despite not buying traditional ads. Instead, Farley intends to allocate finances to improve customer experience.
Financial Education Never Ends
You can never be 100% financially savvy. There’s always something to learn, new questions to ask, and possibilities to consider. The best CEOs will always want to make sure to never take anything at face value, and instead, take the extra step to learn more about the financial challenge they are facing. Moreover, they will strive to understand their product, market, and industry as much as they can to make the best financial decisions possible.
