How understanding your financials will make or break your business.

There is a plethora of information out there on what numbers you need to know in business – to see what I mean just  google “what are the most important numbers in business” you get a vast number of links, including;

 

5 Important business numbers you need to know

7 Financial numbers every business owner should know

3 Most important numbers for success in business

Why choosing critical numbers is so important

And on & on & on…….

 

Typically, on the internet there is no shortage of information. And this search above is another example where I’m invited to consider between the 5, the 3, the 7 & the critical numbers and so on & so forth. So how are we supposed to know which numbers really do matter?  And all this in area of business that is so critical that if you don’t understand what is going on it can literally make or break your business.

Why do 80% of businesses fail in the 1st 5 years?

No Cashflow + No Profits = No Business

My answer to the above question is quite simple… it’s not just about which numbers that you need to know – it’s about being able to identify the key elements of your financial reports & statements and understanding what those numbers mean. And you need to be doing this during the month / financial period, not long after its over.

So let’s re-cap….. my answer to the above is you need to understand the key elements of your financial reports & statements, know what those numbers mean, and be tracking them during the month, not long after its over.   You need to;

  1. Know and understand the key elements of your financial reports & statements

Your Profit and Loss (P&L) and your Balance Sheet are your best friends in business – embrace them and you won’t go wrong. To put it simply, your P&L summarises your revenue, cost of goods and expenses, and tells you whether you are making a profit. Tracking your P&L will tell you whether you need to make any adjustments to your cost of goods or expenses to ensure your business will be profitable.  Your Cash Statement summarises the transactions in & out of your accounts.

Your balance sheet shows your assets and liabilities at any point in time and therefore how much equity you have in the business – which is how healthy the business is.

2. Understand what those numbers mean and what impact they have on your business

Understanding these numbers in your P&L, Balance sheet and your Cash position will allow you to work out important calculations, such as:

  • What your break even point is (and what it takes to reach it?),
  • what are your biggest expenses (and what is your expense ratio across the different areas of your business)
  • what are your highest and lowest margin products (what are the biggest sellers and where should your focus be).
  • Most importantly, they will tell you how your cash flow is looking, which is one of the most critical factors in running a business, and what your cash gap is. You can read more about cash flow and profit in this article HERE.

3. Be tracking these numbers during the month / financial period, not long after it’s over.

There is no point finding out at the end of the year that you didn’t make a profit… a business MUST make a profit to be viable, end of story.

It makes much more sense to set a budget to make a profit, and track it closely to ensure you’re hitting the targets. And if you’re not, then adjust along the way to fix things.

At Action Victoria we call this Financial Mastery – it’s mastering those financial statements and the numbers in them. Our Financial Mastery Workshop is focused on Operators of a Business who must be able to identify & understand the numbers in their business that make the most impact during the month, quarter or financial year not after its all over.

If you could use some help with your Financial Mastery contact us below at Action Victoria, we have a Financial Mastery workshop coming up soon and would be happy to show you how its done.

You’ll find having an Action Victoria business coach is just like having a marketing manager, sales team leader, trainer and recruitment specialist – wrapped in one – all for one nominal investment. We are the business partner you need without sharing your profits – with over 60 years of collective coaching experience to keep you on track and accountable for your own success.

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