You need to know your Numbers
I've been thinking about this topic after mentioning it in a video and having a conversation with a friend, who worked for a medium sized company that failed after six years in business and sales steadily rising.
I began to wonder how a company with more than fifty employees, a decent product, and growing sales could fail suddently. The problem resided in the numbers, they had made significant investment in new office spaces and their customer acquisition cost was too high in relation to the net margin.
A frequent mistake I see from several navigated entrepreneurs is the inability to check their company's numbers, with the excuse of not being good at math they hire a Chief Financial Officer, a Cost Control Manager, or a Commercial Accountant. I get that not all business owners have a background of a Financial Analyst, or that the myriad of daily commitments keep them busy from auditing their business performance. However, it is imperative for Entrepreneurs to measure and understand the basic financial principles to predict how well the business is structured for success.
Monitoring numbers will allow you to measure how far you are from reaching your goals. When you know your earnings and profits, you can easily tell if you're on track to reach the goals you set for your business. Conversely, if the numbers are below expectations, you can adjust your plans and strategies to align with your goals.
Understanding your business numbers is the key to understanding your business. Looking at your balance sheet, you can identify the primary sources of your business income, the largest resource drainage, and the areas where you need to focus and optimize. It's also important to know where your business is in the larger scheme of things, comparing its performance to the industry average and to your closest competitors.
Therefore, make sure to educate yourself on the basic accounting principles and invest part of your time in controlling the numbers. Keep in mind that all the successful businesses are built on two main fundamentals, net margin and operating cash flow. These are the most accurate gauge of a company's standing and performance in the marketplace. A company may show increased revenues but if the cash flow margin is low or non-existent, the company lacks the cash to expand.
You might be thinking, I don't have a business, why should I care about numbers? I have a theory that everything in the modern world is run like a business, we check the expenses of our family, we make budgets, we plan investments and see how much cash funds we can set aside in our savings account. Relationships are a mirrored reflection of a business, you share tasks with your partner, have deadlines and you invest your time to build a successful marriage. It doesn't sound very romantic to have a "productive" family, or a "productive" friendship, but if your ultimate goal is to produce love, happiness, or well-adjusted kids the business mindset is the only possible route. Start thinking in terms of targets, high-profile achievements and check your numbers!