When we talk about finance and accounting, does that make you cringe? Are you scared of the financial side of your business? Does it make you want to scream and run?
If that makes you feel like you are watching a horror movie, then guess what? You need to know what is going on with your business financially. It’s time to stop being scared of the numbers and face it head on.
If someone says to you, “Let’s sit down and go over the accounts“, how does that make you feel? Do you think– “Yes! That’s something we need to do.” Or do you think — “Really? Do I not pay you to do that?”
Now, when I say that you need to know what is going on, I’m not talking about you actually doing the accounting. Please don’t try to do it all yourself.
Let me tell you a little story —
Years ago, my start on the road to proper outsourcing started after I listened to a speech from a fantastic guy called Brad Fallon. He basically said: “Stop playing around with Quickbooks.” I thought to myself: “Well, I’ve just figured out how to use Quickbooks for my business.”
It made sense obviously throughout the rest of the speech and it instantly resonated with me. As soon as I got back, I hired someone to do my Quickbooks, and that lovely lady Debbie is still working for me to this day doing all my accounting.
So you need to understand the numbers of your business. You don’t need to understand everything, but you really do need to have a handle on it.
Firstly, you need to know financial results, or at least what kind of shape you are in financially, preferably at the end of every single month.
If you wait until the year end and then give all your books to the accountant, you will be waiting a few months to even see a draft of your financial report. By the time you get them back and they’re ready, a period of nearly eighteen months will have gone by. That’s not really going to tell you much is it?
The accounts are a tool for your business. Once I learned that, my previous fire protection business went from strength to strength. It sounds really odd, but because of the success, we brought in an additional accountant and paid him to put our figures together and we had accurate financial accounts by the seventh of every month .
This taught us all sorts of things and we looked to some key ratios that helped us track where we were, what we had to allocate, what was doing well, what wasn’t doing so well, etc. The good things that were doing well, we could do more of that, and the things that weren’t doing well, we could stop that right now instead of finding out a few months later.
Certain ratios if they went out of a couple of figures, we knew that we had to do something about and look into it.
When it came to raising prices, we didn’t just have income. We knew income of certain types. Some were profitable, and if we needed to raise prices, we could increase those. If there were other bits that were more price sensitive by a smaller amount, some parts by a higher amount, not just a block price rise across the board, we could know instantly how that would affect the bottom line.
Perhaps we were going to do some extra advertising. Back in those days, we had to use the old fashioned method of advertising — the yellow pages (ugh)!
So — the numbers are important and they aren’t something to be scared of. Talk to your bookkeeper and ask them: Is this something that they could do — to give some monthly summary, something simple, that gives you an accurate position of a couple of the numbers that will make sense to you?
You want to have a monthly track of cash, your cash position, your net cash position, because that’s what it’s all about. It doesn’t matter whether you’re overdrawn, whether you’re in the black.
You could be overdrawn if you have an overdraft and using it as a tool. But if it is recorded on a spreadsheet, then you look at it month by month, you can see the pattern going up or you can see the pattern going down, but you want to know that now not in a years time.
There are other things you need to know as well that involve numbers —
- You want to know your product costs are as a percentage of the sales
- You need to know what your fixed overheads are. Do they vary every month?
There are some key numbers like these above, that if you could get a handle on them, you can keep your finances under control and then you can decide how much money you want to spend on marketing.
Remember, if you don’t market, you’re not going to have any customers. If you don’t have any customers, you don’t need any accounts, and you might as well go home.
This was a big realization for me and has been crucial to any success I’ve ever had. Trust me, try it.
It’s Monday and I want to get you reading this week. This week, I want to share a book with that that also changed the way I look at my business. This book has become a worldwide movement with meetups and groups all over the world. It’s called : The Lean Startup, and it’s by a gentleman called Eric Ries.
It’s based, in effect, on TPS, Toyota Production System, which is one of the reasons why Toyota is the leading car producer in the world and overtook all the American producers.
What in effect it teaches you, is that you don’t have to wait until everything is just so. You don’t have to procrastinate to launch your product, your service, or your whatever.
You don’t have to get it all right. You can get it good enough, minimal viable product, launch it and then act on the feedback from your customers very quickly and then work on it until that product is perfect.
But don’t get it perfect in the way that you think it to be perfect because quite often when you launch your product or service, you’ll find that your customers don’t like a certain aspect, and that they prefer an aspect you didn’t notice.
But seriously, this is a fabulous book and Eric is a well-known speaker and has been traveling all over the world because this is a really popular movement.
It worked for us, and it will work for you. There will be something in it that will click for you. Trust me.
What numbers do you need to stop being afraid of?