We can’t be great at everything. Although many business owners excel in areas such as managing employees and delivering high quality services and products, it is common that business owners struggle to support their business from the financial side, regardless if they have a financial background or not. The fact is, when something is of our own, such as a business, we have a skewed and biased perspective regarding its value that can’t be changed. Therefore, it is remarkably important to have an employee that strictly handles finances, and can assess the business without the skewed perspective of an owner. In Chapter 5 of The Adventure Begins When the Plan Falls Apart: Convert a Crisis into Company Success, Jim Baker refers to this employee as a “gatekeeper,” someone who will provide a second pair of eyes from a financial perspective on company decisions about implementing strategy and managing operations going forward. This gatekeeper can fall under the title of a CFO, a financial advisor, a book keeper, accountant, or even a mentor. Regardless of the title, Baker emphasizes that the sooner an owner realizes that his or her business needs to adopt a new financial system, the better.
While certain business owners are skilled with numbers, very few are able to properly analyze and adjust accordingly. A study by Xero found that 65% of entrepreneurs who cited a business issue as a reason for failure blamed financial mismanagement for their collapse. The reality is that many business owners don’t know where their money is being spent, and only look at income over crucial factors such as gross margin that considers the value of a product in relation to the cost of developing and delivering that product. A person or team of employees that direct their attention towards finances will be irreplaceable as they will be able to determine spending costs of company-growing methods such as marketing, technology, and future investments. In addition, financial gatekeepers will aid with tax services, and how companies can solve tax issues or minimize the tax impact on balance sheets. Once a financial gatekeeper runs and analyzes a company’s numbers, they can determine different areas a company can invest in. For example, they may suggest investing money into shares and money market funds, or may recommend that the company invests in more high-quality employees, marketing strategies, etc. After certain investments and business decisions have been made, financial gatekeepers will measure progress, encouraging profitable behaviors, and changing strategies when necessary. By having a financial gatekeeper that is invested in the financial health of the business, business owners can begin to receive constructive criticism that will grow a company and save it from potential disaster.
Just as COVID-19 altered everything in the world, it heavily affected the role and importance of financial gatekeepers. Today, gatekeepers in a business are faced with extreme responsibilities amongst the COVID-19 pandemic. Financial planners across the world claim that they have noticed a drastic increase in clients seeking advisors, as many owners have seen the positive effects of having a seasoned professional to aid them. During COVID-19, financial gatekeepers have noted three critical roles in helping companies amidst the pandemic. Empirical research from a management consulting company finds that these roles are to address the immediate crisis by properly managing cash reserves and planning for potential scenarios, stabilizing the business in its investments and productivity, and pushing to thrive in the next normal.
Now, more than ever, it is important to remember that “you don’t know what you don’t know.” As a business owner, it is easy to get caught up in the idea that you are the one who is responsible for making all of the decisions in a company, but one of these decisions can be to hire people to do things such as managing finances. As Jim Baker shares in his book, outside help is essential to assess the health and value of a company. By addressing gross margin and providing constructive criticism, financial gatekeepers will be crucial to growing a business’s value!