Know Your Numbers: I
“If you don’t know your numbers, you don’t know your business.” – Marcus Lemonis
Success is a numbers game. Every business owner needs to be able to measure and understand some basic financial concepts that help tell the story of your business and predict how well the business is positioned to succeed. Having a broad overview of your company’s financial position allows you to see whether you are on track towards meeting your business goals, make sound decisions based on the actuals of your business performance, come up with solid and proven strategies based on facts and not assumptions, and quickly identify the root causes behind slow business performance/identify weak or underperforming areas within the business and come up with solutions to tackle them. The most successful business owners know how to recognize issues and stop them early.
You don’t have to memorize all of your numbers but if you hope to get a grasp on your businesses current financial position and lead a company that will stand the test of time, you should at the very least be aware of the following:
· Balance Sheet – The quantitative summary of a company's financial condition at any given point in time. By looking at your balance sheet, you can identify the primary sources of your business’ income, the biggest drain on your resources, and areas on which you need to focus and optimize.
· Income Statement (or Profit and Loss or P & L) – This statement records all revenues for a business during a given period, as well as the operating expenses. Did you know that you can actually be showing a profit on your Profit and Loss statement and have no money in the bank?
· Cash Flow – Simply put, cash flow determines your company's solvency/ how much money you have in the bank.
· Working Capital – The capital you have available to work with today. This is determined by taking (current liabilities - current assets).
· Revenue – The money you’re bringing in (by getting clear on how much money you are generating vs. how much you are spending, you will get a clear picture of your operating costs).
· Expenses – The money you’re spending (your bank and credit card statements should tell this story).
· Gross Profit – Revenues less the direct costs of producing your product.
· Profit Margin – This number will tell you how profitable the business is. This is determined by taking (the total of your general and administrative expenses - gross profit / sales).
· Equity – All of your assets minus all of your liabilities.
It may be a good idea to identify four or five of these figures that you should be tracking on a regular basis and spending some time understanding them with the key decision makers in your business.
This year, make it a habit of keeping track of your businesses numbers. Your business will thank you for it! I’ll be covering some additional numbers to know in a future article. If you have a topic you would like me to cover or a question you would like answered then feel free to shoot me an email @ firstname.lastname@example.org. I’d love to hear from you.