Can your Management Team pass the Financial Literacy Test?

The CMO once made a strong statement that one of the requirements to be an entrepreneur, at least a good one, is to have written a business plan. I am not talking about the back of the napkin strategy, but rather a true Business Plan. The purpose is this exercise is not to show the world that one can write a long document but rather it shows the readers whether the writer truly understands the entire business from vision to the model to research to marketing strategy to the management team to operations to sales and finances and funding.

Before an entrepreneur can write a great business plan, they first must be financially literate. Are Your People Financially Literate? According to the article, “Asked to take a basic financial-literacy exam—a test that any CEO or junior finance person should easily ace—a representative sample of U.S. managers from C-level executives to supervisors scored an average of only 38%. A majority were unable to distinguish profit from cash. Many didn’t know the difference between an income statement and a balance sheet. About 70% couldn’t pick the correct definition of “free cash flow,” now the measure of choice for many Wall Street investors.”

I hope that this scares the “#$%&” out of you. Do you know who is coming into your business to help you grow? Hey CEO/Founder, you are off the hook, you do not have to be the expert on finance, but I guarantee that you have a strong sense of financial literacy (especially if you funded the business out of your own pocket). If this is not a core competency of yours, your team better have an even stronger understanding of finance.

I discussed Why Entrepreneurs Fail before. They have No Skin in the Game. Based on this new research, maybe you should ask your management team to put skin in the game. Maybe they will understand how money flows through the business when it is their own money on the line.

Do you agree with me? We put our money where our mouth is with our clients. Do you? Financial literacy is not a nice to have, it is a must have, especially when growth is on the line.

“Accounting is the language of business, and you have to learn it like a language. You can’t be comfortable in the country if you aren’t comfortable with the language. To be successful at business, you have to understand the underlying financial values of the business.” Warren Buffett

CAN YOU PASS IT? I met the team at FINANCE DOG who created the financial literacy test to implement their services in my company. I now make it a requirement that my management team(s) must pass this.

The Chief Marketing Outsider and Financially Literate