Just think, If you only knew your numbers
Getting in touch with friends this week inspired me to make this point; just think where you could be if you only knew your numbers. Yes, I just said that. Easily the greatest number of business failures occur for lack of planning and knowing the numbers that drive the business.
Don’t be surprised to know there are many business owners that eke out an existence and succeed without knowing more than what’s in their checkbook. So, despite themselves, they may have a somewhat successful business. Just think where you could be if you only knew your numbers.
Let’s look. Besides your checkbook there are numbers related to your industry; how many widgets do you produce each day, how many times do you turn your tables each evening, how many free consultations get you another client, how many feet of wire will you install in a new home, what’s the value of your average transaction and more. Your industry has numbers that drive success and yours probably fall in the middle of all of them.
However, if you want more money today you must learn your financial numbers outside your checkbook and your industry. Every single business, regardless of industry, have these 3 financial statements in common; the Balance Sheet, Cash Flow Statement and the Profit and Loss Statement (aka Income Statement).
Thoroughly knowing these 3 is crucial and provides an in-depth picture on the health of your business. Very simply, the Balance Sheet indicates what the business owns (assets) and what the business owes (liabilities). The total of assets and the total of liabilities are equal. It is a snapshot in time on the day that you run it and indicates the net worth of your business.
A cash flow statement provides data regarding all cash inflows a company receives from its operations and external investments. It also includes all cash outflows that pay for business operations and investments for a given time period.
The Profit and Loss Statement though is the juicy stuff. For the given month and year, you can track all the income in your business and all the expenses by account category. If you have goods which you purchase to make something which you sell, these are referenced as Costs of Goods and what’s left after you pay for the goods is your Gross Profit. Gross Profit is what’s left to pay for everything else in the business including your salary, everyone else’s wages and all the taxes and overhead expenses whether you buy any more goods to produce. Net Profit is what’s left after EVERYTHING is paid for and is what’s available to invest and grow the business.
Now if you really want to get better at the P&L Statement you add an additional column next to the dollars earned and spent. This column is going to be Percent to Income. Every item on the P&L Statement will have a direct relationship as a percentage of the income. This is crucial. This is where you learn the range you expect to see each month. This is where you compare to last year, this is where you learn to build a workable budget, this is where you make more money because you know what to expect and address issues sooner. Once you manage the percentages you will add to the Net Profit. It costs you nothing to manage the numbers better.
Your accountant or bookkeepers can provide this information, but many won’t unless you ask. Some provide them but you don’t know questions to ask so you file them away and continue to look at your checkbook. And believe me, there are great accountants, but many are not good at explaining this stuff, so they don’t. No disrespect intended, they are numbers folks, not teachers. If you’d like to review your numbers, shoot me a note. I’ll do it for free. I’ll even help your accountants and bookkeepers.
Take action today to learn your key financial numbers and then Go run a Lap! Business is Fun.
Tony Marder is a Gastonia resident and President of ASM Ventures Corporation. His clients are family businesses who develop and implement new strategies to make more profit. Reach him at www.enjoyingyourbusiness.com.