[vc_row css=”.vc_custom_1548289356400{background-color: #bcbcbc !important;}”][vc_column][vc_single_image image=”4633″ img_size=”full” alignment=”center”][vc_column_text css=”.vc_custom_1753490807193{padding-right: 19px !important;padding-left: 19px !important;}”]The numbers drive everything in your business and it is imperative that you the business owner know and understand your numbers. They are like the scoreboards at a sporting event. Without them and without an understanding of what the numbers mean you really don’t know how your business is doing. You do not know if you are winning or losing the game.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text css=””]
Chapter 9: Manage the Numbers
The numbers drive everything in your business. Without a complete understanding of your numbers, you really do not know how your business is doing. You cannot manage your business from your checkbook.
When I watch football, how do I know who is winning and who is losing while I watch the game? I look at the scoreboard to know the actual score, the time remaining, the down, and how many yards to the next first down. Even the referees, the coaches, and the quarterback pay attention to the scoreboard. Reading the scoreboard is the only real way to know which team is winning and which is losing.
Use Your Scoreboards Wisely
It is the same in your business. The primary scoreboards in your business are the P&L (profit and loss), the balance sheet, and the cash flow projection. How else do you know if you are winning or losing? Income statements (also known as the P&L) are great for comparison to measure progress in the business. For example, you can use it to compare the current quarter with the previous quarter, or the current quarter to the same quarter the previous year. The P&L is like a movie it covers a period of time, such as the first quarter (Q1), second quarter (Q2), or year to date (YTD). The balance sheet is similar. It is a good comparison tool, and it works like a snapshot in time. It covers a particular date, like the end of the fiscal year (December 31) or the end of a quarter, and looks at the information on that particular date in time. If you are not using the P&L and balance sheet as comparison tools, you are not tracking the performance of your business.
The problem is that both the P&L and balance sheet are lagging indicators. They look backwards, and what has happened has already happened and cannot be changed. The only tool or scoreboard a business has that looks forward is the cash flow projection, which takes all the information from the P&L except depreciation and amortization because they do not use cash, and then adds in debt payments, which are a use of cash but do not show up on the P&L. The problem that many business owners get into is that they look at their P&L and net income and think that is cash. It is not cash but the theory of cash, because any principle payments on debt are not recorded on the P&L but are recorded on the cash flow projection.
Many business owners I run into are not paying attention to their scoreboards. They are essentially running their business by the seat of their pants, hoping they are winning the game, but they really do not know. They are playing a guessing game with their future and the future of their employees.
When I fly an airplane, I have to be able to read the instruments on the dashboard. I might be able to get by on a clear, sunny day, but what happens if a storm comes in, or I get caught in fog? In those circumstances, if I am unable to read the instruments, I am probably going to die. It is your responsibility to know how to read the critical instruments in your business: the P&L, the balance sheet, and the cash flow projection.
Learn the Language of Business
If you are an entrepreneur with a particular skill set and that skill is not accounting, then I would suggest you take some online or on-site courses to sharpen your skills. You do not need to become an accountant, you do need a basic understanding of accounting. I also recommend Finance for the Non-Financial Manager by Gene Siciliano. Ignorance is not bliss when the success of your business is at stake.
I have a favorite restaurant in Portland, Oregon, where I like to eat. The food is always amazing and the menu changes regularly based on what is fresh at the time. I love to sit at the chef’s counter and watch the cooks work their magic. If you consider the consistent and flawless food they produce, you realize that the chefs have mastered the language of cooking teaspoons, tablespoons, cups, pinches, temperature, seasoning, and much more allowing them to produce amazing results. The language is such a part of them, it is as if they have become native speakers.
It is the same with musicians. The ones that move us with their songs have learned the language of music flats, sharps, chords, and keys. Their investment in learning the language produces the compositions we spend our time listening to and enjoying.
When flying, it was critical that I learn all the aspects of flying, such as the pre-flight check list, taking off, actually flying, and landing (which was always the most challenging aspect). I had to learn the language of flying in order to make good decisions. I had to understand what levers to push or pull and to what degree. If I had been lazy and had not taken the time to learn this language, it would have been disastrous to my life and the lives of my passengers.
As a business owner, you are responsible for learning the language of business accounting. Understanding the P&L and balance sheet and how they are interconnected is critical to the success of your business. If you are unable to understand and speak the language, you are putting your business in jeopardy.
The problem is that the P&L and balance sheet both look backwards. The information you are receiving has already happened, and you cannot do much to change it. The past is important, but what about the future? Most of the mistakes in business are due to not knowing your real numbers. You thought you were going 75 mph, but you were really only going 30. You thought you had a full tank of gas, but you were only half full. That’s why you need a cash flow projection.
Success Steps
- Learn the language of business.
- Review your P&L and balance sheet weekly.
- Compare months, quarters, and YTDs to the previous year’s results.
- Consider what adjustments you can make to manage the numbers in a more profitable way.
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It’s Not Hard, It’s Business
Fundamental Steps to help business owners learn what it takes to grow their business and increase their revenue.
As the former GM and COO of a $40 million company with seven locations I have learned what it takes to be successful in business. In this book, I share some keys to sustainable business growth and acceleration and the way to close the gap between your performance and your dreams.
You didn’t go into business to just get by, you got into it to succeed. Follow our series on the website and get your desktop reference copy from Amazon.[/vc_column_text][vc_single_image image=”4271″ img_size=”full” alignment=”center”][vc_column_text]
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