Edition 428 – Knowing The Numbers
Sadly, very few small and family business owners have a real understanding of the numbers in their business. And, in spite of the great advances in financial information, particularly via technology, over the past 25 years, I can say with a high degree of confidence that business owners haven’t kept pace in terms of their financial skill set.
Perhaps it’s a result of their evolution from technician to entrepreneur, that means they still think like someone on the tools, rather than someone in control of the destiny of their staff, clients and families.
Perhaps it’s a result of them being stuck on the shop floor, in the warehouse or out on site, where they’re dealing with the problems that evidently arise daily, in business.
Or maybe it’s just that the myriad of stuff that comes across their desks, or through their phones, each day, overwhelms them to the point where, when the sun is setting in the west, they’ve run out of puff to even consider looking at the numbers.
If I was to think through the characteristics of what separates the financially savvy business operators from those that aren’t, here’s what I’d say after observing it, and working with these people, for more than three decades.
Those that ask questions, do so to increase their knowledge. Those that don’t ask questions, do so in the misbelief that their lack of understanding implies they’re stupid.
If your financial information is up to date, preferably daily, and at the worst, weekly, you’ll gain a greater picture as to your financial performance. Any later than that, and you’re driving at night, in the fog, with the lights off.
Working closely with a trusted advisor, to understand, interpret and forecast the numbers increases your knowledge and your understanding.
What’s in the bank is not the totality of how the business is travelling. Too often, the level of happiness of the business owner, each day, is determined by the size of the bank balance. That’s but one piece of the puzzle.
Keeping an eye on how much you’re owed, and for how long, means you improve your bank balance faster. It also means that if some of your customers are dragging the chain on paying, you can make quicker decisions as to whether they should remain a customer.
A good, reliable, trustworthy person, in-house, that looks after your finances, is critical to the success of small and family business. If you treat the finance function as just another arm of admin, and deal with it like you’re dealing with the pile of filing on your desk, you’re on the motorway towards financial oblivion.
Times are bumpy at the moment. Corporate collapses are at their highest numbers since the days pre-pandemic. Some industries are more represented in liquidations at the moment, than others (I’m looking at you, Building and Construction).
If you’ve turned a blind eye to your business finances in the past, or merely accepted it’s just a part of being in business that you’ve not quite got your head around, then I have news for you. That’s not a defence in the event your business comes under financial pressure. It’s also putting at risk everything you’ve worked for throughout your business and professional life, including your home and your worldly possessions. The world has changed. So should you.
This Week’s Tip
“There’s never a silly question. And, if you don’t understand the answer, ask again.”