Good Managers Remove the Fear of Money
Most managers are afraid of money because they don’t understand what it does and means. This makes it harder for them to make the kinds of good decisions CEOs want them to make.
In ancient Mesopotamia, the Gugallu or “water manager” was responsible for overseeing the entire system of canals, dikes, and reservoirs. Their records held essential data for planning repairs, improvements, or expansions.
To a good manager, money is like water flowing through an irrigation system. It’s of course essential to grow crops, but the manager, using valves and meters and gates, also measures how much gets used, distributes water fairly among the farmers, and includes a reservoir for droughts.
Let’s Face that Fear Together: MIMIC
While doing some planning with six scientists managing a business unit, I learned their performance bonuses were tied to Gross Margin. The finance conversation seemed to have some gaps, so on a hunch I asked, “How many of you know what Gross Margin is?” No one raised their hand, including the leader.
Most managers and their teams are afraid of getting into trouble for not bringing enough money in or letting too much money out. They feel money’s judging gaze lurking over every hour. So, like my scientist-managers, they get too frightened to face what money means and does.
The classic and best definition of money is as a “store of value,” a fluid way to store and invest the value of people’s hard work. This is how money is like water, nourishing people and crops.
There are five ways good managers use money to flow that helps their teams feel safer, more respected, and empowered to take on meaningful challenges. Remember this mnemonic device: MIMIC: Measure, Inform, Motivate, Invest, and Control.
Measure
Another client once said, “When in doubt, count something and divide it by something else.” Money, either in amounts or percentages, is one good way to measure progress. Norm Brodsky, in his excellent book “Street Smarts” advises new entrepreneurs to calculate Gross Profit and Margin using pencil and paper so they literally get a feel for it. I agree entirely Gross Margin is the most fundamental measurement of how well you’re using money.
See 6.2.1 Financial analysis of The Index for ratios every manager should know; click through Level 2 of 6.0 Finance to get the bigger picture.
Inform
Some limited form of open book management is essential for managers. How else are they going to make informed and timely decisions?
It’s common for middle managers to think Net Profit all goes into the owner’s pockets. Unless you tell them, they’ll never know that taxes, interest, investments and repairs, and raises come out of Net Profit. You need to spell that out—better still, engage them in some of those decisions.
It’s also good to be frank about the risks that the owners run that the employees do not: enduring recessions and disasters, changes in interest rates, taxes and tariffs, and the uncontrollable trends of regulations, technology, and industry concentration.
Motivate
Some people are motivated by money, and those who are often assume everyone else is. But it’s proven that when people have enough to pay their bills, they lose interest in excess money. Those who want money for money’s sake are greedy and, after a point, likely to be toxic for the organization.
A good manager motivates with money mainly for recognition and to give people new tools and opportunities. Fairness and openness in compensation systems is absolutely essential. A golden rule for managers is, “Never joke about money.”
Invest
Money can obviously be used to invest in the people and assets needed to grow. Like flood water in a reservoir, managers can use excess money to invest in growth.
For projects and other investments, consider using the 1-page ROI Worksheet from The Center. It’s simple, solid way to introduce logic and discipline to the financial aspect of a decision.
Control
Yes, people who waste money and go over budget need correction and education. But people gain confidence when they learn how monthly progress reports can help them correct course and avoid a year-end (or project-end) embarrassment.
Good financial reporting systems—combined with financial education—make it easier for senior managers to delegate with confidence. Delegation is how we leverage each other’s abilities, which is why we form organizations in the first place.
The management standard of ethics, The Pledge of Managerial Power, applies here. Managers have control over people’s salary and, ultimately, employment. Threatening someone’s money is threatening their safety and should never be tolerated.
Take a Year to Work Through the Fear
Waiting until the end of a year to see financial results will cause people to hide under their desks.
Instead, start gradually and provide monthly financial updates on projects and processes. Give people time to learn and correct—and of course give them training and support. If you provide good systems financial reporting systems, they’ll learn that money will actually prove their value, competence, and success!
And then everyone can enjoy a better harvest every year.
