Have you ever noticed how most senior professionals claim to be ‘commercially-minded’? The phrase is so overused that it has now lost all meaning in the business world.
In my experience, being commercially-minded or commercially-aware is actually quite rare. The reason I say this is because I deal with many so-called commercially-minded people who are in a business turnaround situation. They are in a turnaround position because of poor commerciality. They made questionable commercial decisions. They didn’t understand commerciality. They didn’t understand the financials of the business. They didn’t understand what ‘value’ actually means.
In this post, I’m going to go through what being commercially-minded actually means and how you can train yourself to drive yourself and your team to be commercially-driven, high performers.
What Commercially-Minded ISN’T
Funnily enough, here is the Collin’s Dictionary definition of ‘commercially-minded’.
I’m sure you’ll agree, I know plenty of people who are knowledgeable about business but they aren’t commercial. I know a hell of a lot of people who are interested in making money, but they aren’t commercial.
If the dictionary is struggling to define this, then it bodes well for us to dive deeper into this.
My issue with the definition is that they are non-commital. ‘Knowledgeable’ and ‘interested’ aren’t words that drive action.
I have come across many people in my career who are knowledgeable about business however they have made some terrible commercial decisions. They don’t understand the 3 financial statements.
How then, can one be commercially-minded? It doesn’t make any sense.
Simply being interested or knowledgeable about something is not enough. It has to be then, something entirely different.
How To Tell If Someone Is Commercially-Minded
Commerciality is rooted in the numbers. In business, there are many different numbers you can look at. But which ones really matter? A commercially-minded person knows which numbers are important at any given time, they know the drivers and blockers to those numbers and they get to work putting the right numbers on the financial statements.
Commercially-Minded People Understand the 3 Financial Statements
If a person claims they are commercial but they don’t know the 3 financial statements, then they are not commercial!
Early in my career, I professed to be commercially-savvy. However I had no clue what the financial statements of a business were, I didn’t know there were 3 of them, I had no idea what the purposes of each statement were and I hadn’t the foggiest clue as to how the statements linked together.
A commercially-minded person needs to have, at least, a basic understanding of:
If they don’t have the basics down then you should question their commerciality.
Ask basic questions to test someone’s commerciality such as:
- Where would you find Shareholder Value?
- How do you calculate gross profit?
- How do we recognise income on the P&L?
Improve your commerciality with this quick reference guide for all 3 financial statements. Learn the purpose of each statement, what numbers to look out for and they key questions you should ask when looking at them.
Commercially-Minded People Drive The Numbers
It’s one thing understanding the numbers, it’s another thing to drive the numbers.
Firstly to drive the numbers, you need to know which numbers to drive. For example, in a business turnaround, the focus can often be to increase turnover. It’s not that this is incorrect, it could just be incomplete.
Turnover alone can’t turn a business around. It has to be balanced with defensive measures such as cost-cutting.
Making small tweaks can realise massive value. For example, once I worked with a manufacturer who decreased their cost of sales (COS) by £6,900 a month (gross). That equated to over £82,000 gross savings for the year! That’s over £66,000 straight on the bottom line!
The tweak we made wasn’t a mystical or magical thing. It was common sense. All it took was a commercial person to look at the right numbers, apply a bit of common sense, and add value.
Quite often in a business turnaround, attacking the COS and Operating Expenses are a good place to start. There are always savings you can make in these areas. You just have to know where to find them.
Another simple exercise you can do is to review your cash flow statement. Go through all your expenses line by line. Question every single expense and ask the following:
- What is this?
- Why do we need this?
- Do we actually need this?
- What would happen if we got rid of this?
You’d be surprised how many times I’ve done this cash flow exercise and we’ve found thousands of pounds worth of savings. In many instances, we were paying for things without knowing what they were!
If someone claims they are commercially-minded then ask them basics about the 3 financial statements. If you feel that your team is not commercial enough then train them! Put them on a training course. Or better yet, buy them this book – Finance for Non-Financial Managers. It’s a great basic starting point and has helped many people to get to grips with finance and accounting.