Overcoming Mistake 5: Become financially literate - it IS your responsibility

Disclaimer: I am not financially trained - so these are simply my opinions!

The 3 main financial documents are:

1. Profit and Loss: Income versus expenses over time (Reactive)
2. Balance sheet: Current assets and liabilities right now (Current)
3. Cash flow forecast: Income and expenses for the future (Proactive)

As a software manager, I suggest you should AIM to understand all three, but if there is only one that you MUST understand it is the Cash flow forecast.

Benefits
The benefits of each are:
Profit and Loss: You understand how well the company is doing
Balance sheet: You understand how much CASH you have (eg to finance new projects/products)
Cash flow forecast: You understand whether you will still be there in a month's time

The big mistake software managers make is not keeping on top of the cashflow statement.
The small mistake software managers make is not keeping tabs on all three.

We have some direct control over cash flow via the milestones we agree to on projects, and delivering against those milestones.

Another big mistake
Another mistake (I would suggest - remember this is only my opinion) is thinking your accountant/bookkeeper/CEO/MD will keep you apprised of debtors, cash flow and likely revenue issues. Sadly we only really understand this mistake when it is too late. When the CEO comes to tell you that that cash flow is a problem, it is too late...

Interestingly bigger companies (with reserves generally in place) spend more time monitoring cash flow than small companies (who may have little in the way of reserves).

Here's a comment that came out of this session when presented at a user group meeting:
Try to understand client spending: this is especially important in Government situations where managers often have budgets that (a) have to be met, and (b) may have a limit below which they can easily authorise (ie keep your cost below that limit)