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Behavioral Finance℠

Author: Terri Wilcox - Nov 2015

Who would ever think that finance has a direct correlation to behavioral management?

Finance and accounting methods are black and white (remember accounting 101?). You either understand the debits and the credits, or you don’t. You either budget and project or you don’t. You are either capable of analyzing your profit and loss statements and the balance sheet, or you’re not… that’s what financial literacy is all about. And if you are an owner who does not come from a finance background, that’s okay, because we are owners. We don’t need to get down in the weeds and perform the accounting details. Great leaders know how to surround themselves with experts in the departments where we aren’t strong. So all we need is to make sure we have a great CFO or Controller on our team. Right?

As owners, this way of thinking about finance can get us into trouble without even knowing we’re in trouble. Similar to issue solving, this level of thinking doesn’t really get down to the root cause, or in this case, the foundational principle underlying financial management. The root cause of most financial management issues does not go back to financial literacy, but more to behavior…and that means the behavior of those of us who are in the lead. How we “perceive” finance determines the level of importance we place on our strategies, our goals, and the people we serve (both internally and externally). Perception is a strange thing. It actually leads you to your actions. Beliefs determine your perception and from perception, comes actions. That means how we behave.

The term Behavioral Finance℠ was coined by John May, today a business advisor with RFB specializing in CFO advising. He was researching and developing this concept back in the seventies as part of his investment portfolio assessment process.

Our past experiences have set us up to judge and view finance in a particular way. Which one of these beliefs do you harbor?


Whatever belief you hold, as an owner, watch your actions. Become aware of your behavioral patterns…how you speak about finance, how much focus you give to the numbers, and how you use measurables to make decisions and influence others. People are watching you; your employees, your leadership team, your customers, your vendors. Many will take your lead and model a similar attitude and behavior.

I recently interviewed a highly successful entrepreneur who had sold his business for a very good price. I asked him for his opinion on why he thought his business was so successful and one thing he did that made it so valuable. His answer went something like this: “I used to study the numbers religiously. I would pour over the financials every month trying to find every little thing I could to improve the bottom line. But then one day I changed my perception. I realized I wasn’t in the contracting business. I was in the people business. Employees were my business. And from that day forward, I measured my employees. My financial measurements centered on those who worked for me. Behavior was everything. So first I changed my behavior and then used measurements and financial strategies to gain the behavior I needed to improve efficiencies, increase productivity, and get the right kind of people working for the company. The day I changed my perception was the day that my business took off. And that’s why I was able to sell my business for top dollar.”

Behavioral Finance℠ properly understood and employed creates powerful cause and effect results; better decisions, better understanding, better planning, better change management, and better outcomes.

If you’re only about the numbers you miss the core cause; behavior. If you’re only about the behavior (or organizational development [OD]) you miss the correlative results that drive business value–financial results. Together, they’re magic.

About the Author:
Terri Wilcox is co-founder of Resultants For Business. As an organizational strategist and certified Senior Professional in Human Resources (SPHR) Terri focuses on the people side of business, building teams that develop the aptitude and resiliency needed to meet the challenges of today’s business climate. As an RFB Business Advisor, Terri works side-by-side with business owners and their management teams, providing clarity of thought and the courage to act in the best interest of the organization. Connect with Terri and other RFB® Business Development Advisors here, or on LinkedIn.

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