Know your numbers; they tell a story


Know Your Numbers; They Tell the Story

I am often asked, “What is the biggest impediment to the growth of a business?”  I believe the answer is lack of financial acumen. So many business owners do not understand the financial picture of their business and would prefer to leave that to someone else to figure out.

How can anyone run a business without knowing how the company is doing financially?  Owners think they are making money, but do they really know if they are profitable (either topline or bottom line profitability).  Paying your bills on time and keeping the lights on, does not make you profitable.  Not knowing your numbers is crippling you and your ability to grow.

Relying on your accountant and controller or CFO is not acceptable. This is your company and you need to be able to understand and talk intelligently about every financial aspect of your business.  Find the right people to educate you on the numbers.  Keep in mind that different financial professionals look at numbers differently and for different reasons.  Get intel on who knows what and why.  Meet with your banker, your accountant, your internal finance team and potential or actual investors.  Prepare your questions in advance so you get as much out of the discussions as possible.

How misguided is it to make promises to people, like employing your employees or buying supplies from your vendors if you have no idea if you can keep them employed or pay for what you have purchased?

You are investing time and money in your business. How can that be a good investment if you do not know if and when you will get a return on your investment. 

 Ask your internal team to prepare and provide financial reports on a daily, weekly, monthly, quarterly and annual basis.  Do not get reports for the sake of getting a report.  Work with the team to create the information that you need, and they believe you should have.  Have it presented in a form that makes sense to you. These should be high level reports and give you a snapshot of your current financial situation, as well as provide a historical lookback and projections for the future.  Understand how the reports are related.  At a minimum, you must follow the cash.  Know what you are spending money on and where the money is coming from.

Make sure your team members are also getting the right financial information for them to do their job and to be accountable for their business decisions. As a company, everyone is responsible for and has a duty to manage the money for the company’s success. Every decision has a financial impact (positive or negative) on the company. 

Test the numbers by comparing, looking back and testing the results from time to time. Learn from that information.  Make it fun, set goals, measure and meet and exceed them.  Performance metrics should always involve some financial aspect. 

Understanding and embracing the story the numbers tell, is empowering and enlightening. It gives you the ultimate control over your personal and professional destiny.

You are in business for a reason and as a for profit entity, one of those reasons has to be to make money.  In order to fuel that passion or solve the problem you set out to do through your company, the survivability and profitability of your company will allow you to do just that and for the long term.

Cash may be King, but Knowledge is Golden.

November 5, 2019

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