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Knowing your numbers in business is imperative in understanding the path you are on as an entrepreneur and thus the possibilities and opportunity for success.
I’ll never forget the stunned look both my co-owner and I had years back as we listened to the financial guru we had hired. We needed to understand in simple terms what our financial position was. We had been doing business successfully (or so we thought), but somehow, it wasn’t covering our operational costs let alone translating to profit.
“You are not making money”… This was the statement that led to our stunned looks. How was this possible? We had clients, we got referrals and good reviews, we had a good service, we were perpetually busy, and we got good sized projects… How could we NOT be making money?
This was one meeting that turned our outlook insofar as running a business is concerned. This was one of the biggest lessons learnt in our overall journey.
Let’s take a few steps back. As owners of a business, we had started off with steam and confidence in what we could provide in the consulting space (my co-owner had founded the firm a couple of years before I joined her). We had both been part of the large dinosaurs in the consulting sector and had thus come out with serious technical and business knowledge, enough to do our own thing. We both knew what was required and embarked on a journey in which the only way was up.
It didn’t take long however to realize that there was a big piece we were missing. Even though we did not immediately understand what, it was evident that something wasn’t right. For all our work, busy schedules and vast knowledge, the profits (or lack thereof) just did not add up. In came our financial advisor with some key learnings.
“You must know your numbers”. This is the key lesson that has stuck with me to this day. Numbers tell the actual story of your business. If we are to relate to the sheng (Swahili slang) phrase, “vitu kwa ground ni different”… your numbers tell you exactly how things are on the ground.
Your sales and revenue will paint you a pretty picture of future glory; your marketing will give your sweet promises of outcomes that you may find hard to accurately quantify; your HR will convince you that tomorrow things will be better. It is only finance that will tell you the truth about where you are, what you need to do to get to where you want, and where you will be if you don’t do it.
If you know your numbers, you will easily identify if and where your business is leaking money. You will understand your costs/expenses, where to streamline and what to monitor in order to keep them under control. You are in a position to ensure optimal operations which will mean a bigger profit.
If you know your numbers, you will understand the true impact of the sales/revenue picture. You can ascertain how reasonable the sales are and if they are enough to sustain the business.
If you know your numbers, you will quickly pick out and address risks and problem areas. Are we paying suppliers too much? What impact to the business does servicing certain loans have? What is our tax position? Has all this been factored in our pricing?
If you are anything like us, you probably find finances intimidating and too detailed. You want to leave it entirely to those who studied those crazy formulas and long processes. Unfortunately, you cannot afford to think this way as an entrepreneur. The truth is no one knows the desired path for your business better than you do. Therefore you and only you can truly understand your business story. You must understand your financial basics.
So…ask yourself… Are you in a position to go onto The Lion’s Den and defend your numbers in under an hour? Can you convince potential investors? If not, do something about it. Take time to learn about numbers and the stories they tell. Understand how to read those basic, boring financial statements. This is absolutely critical to making the right decisions that will grow your business. You don’t need to know everything about finance, but you must know enough to understand the brief your finance person gives you.
Remember, not knowing your business numbers is like driving blind. Make a point to have visibility into your business. Know your numbers and grow your business!
Marilyn
