You Need to Know Your Numbers: Here’s How
As an advisor to small business owners, I get the chance to meet a lot of Mum and Dads who have experienced great success in their business but still don’t feel they truly understand the numbers; how they are performing, where they need to focus time and resources and just generally whether they are on track or not. There are several factors that contribute to this; whether it be a lack of financial literacy, lack of business systems and software that produce meaningful information, or simply the lack of accrual accounting in their software (Xero, MYOB) making the data hard to interpret.
There is good news however. This feeling of uncertainty around the numbers and consequential sleepless nights can be solved.
Here is my recipe for SME’s getting a grip on your numbers:
- Everyone needs a coach – an accountant / bookkeeper / advisor who can support you, who has demonstrated ability to produce numbers that make sense, can meet with you regularly to explain results in a logical way, and can give information that you as a business owner can act on;
- Invest in software – a system that will help you run your business more efficiently, ideally be cloud based so you can collaborate with your advisors and get access to the technological changes that are improving business systems almost daily;
- Measure what matters – every business has critical drivers and KPI’s that if you measure will help you make decisions to improve future financial performance. Looking at last month’s P&L will tell you where you’ve been, but it’s history. It’s not telling you where you are going;
- Review and act – review your monthly financial performance against budget, and then make two or three action items that if you achieved in the next month would improve the profit or cash flow (i.e. send demands to the 90+ day receivables, discount that stale stock or introduce Afterpay as an option on your online store). Imagine what the impact of actioning 24 to 36 good ideas per year that improve either profitability or cash flow; and
- Invest in yourself – you need to understand your numbers. It’s not good enough to tell yourself I’m just no good with numbers. As a business owner you need to know enough about the numbers to know when you are on track and when you are not. Absolutely get people around you who do the heavy lifting and an expert coach, but take an interest in improving your knowledge of what makes your business model tick financially.
In my experience, the business owners who use this recipe tend to produce the financial results they are looking for, and sleep a whole lot better.
Want to read more insights from SiDCOR? Click here.