Do you want to do everything you possibly can to ensure the survival and growth of your company? Of course you do. Well, one of the most essential skills that you can bring to your company is understanding, tracking, and using certain numbers.
This numeracy — thinking in numbers — is a vital skill.
In my experience, far too many people feel that they aren’t good at maths, or didn’t take accounting, or whatever. Using this as an excuse, they hire someone else to watch the numbers for them. This is two mistakes in one. First, they’re selling themselves short. Anybody can work with numbers, and the kind of number-tracking I’m talking about requires no advanced mathematical training or professional degree. Second, there’s no substitute for you in this process. Nobody else out there is as motivated as you are to get the numbers working on behalf of your business.
Yes, your accountant can prepare your profit and loss (P&L) statements, tax returns, and balance sheet and offer certain kinds of advice based on rules-of-thumb and industry norms. But you simply can’t count on quarterly meetings with your accountant. In order to run your company properly, you need to get access to certain numbers quickly, and use those numbers effectively.
Know Your Numbers
Here are the numbers you should have at your fingertips:
- A snapshot of the company
- Cash flow statements that are regularly updated
- Cost analysis of your product(s)
- Break-even analyses, both for the company overall and for each new product
Here I will only discuss the snapshot of the company. My goal is to get you comfortable with these numbers — by which I don’t simply mean that you’ll be able to generate them, but that you’ll understand them and be able to adapt and use them effectively. In general, my prescription is, “Know and love these numbers!” Note, I am not saying you have to prepare the snapshot yourself. You can have your accountant or bookkeeper prepare them for you and if your company grows to the point that you can afford a chief financial officer, then they will take responsibility for preparing the numbers.
I call the chart shown below the Company Snapshot because I want to convey the idea that it’s quick to read and absorb. I’ve done it weekly because that’s been the interval that’s proven most helpful to me in my businesses. The snapshot is meant to be simple. It’s meant to be easy to prepare — your secretary or bookkeeper should be able to do it — and able to be digested by you in no more than five minutes. Depending on the specifics of your business, you may want to add or subtract categories from the snapshot provided.
The point of this report is to get the quickest possible handle on key aspects of your company’s operation, such as:
- Do I have enough cash to pay my bills? (You may notice that you’re cash challenged because your fixed monthly expenses seem to be too high. This should trigger you to start thinking about cutting some expenses or converting some to variable expenses.)
- Are my receivables running too high? (If so, is it because payments are running late? Or is it because my credit-checking system has fallen apart, and we’re selling more to non-creditworthy customers?)
- Do I have enough inventory to handle future demand? (A caveat: This report can’t tell you if you have the inventory in the right categories; only a detailed inventory report can tell you that.)
- Have we overcommitted ourselves in terms of inventory? (Most companies hit this stumbling block sooner or later. If your inventory figure is too high, it’s a signal that you need to get the kind of detailed report that would let you take the right immediate action — such as canceling existing product orders, heading off the placement of future orders, putting certain items on sale, or closing out certain items.)
- » Are my sales on target with projections? If not, why and what corrective actions need to be initiated?
You must always keep an eye on your numbers. This snapshot is meant to help you do so in a minimum amount of time. It will help you prevent crises by spotting them before they materialise. Most business failures are attributed to running out of cash. Let’s avoid that.