Business owners don’t want to look at their numbers. They think things are going well or not going well based on an overall feeling of how the business is doing. I see this all the time, but I don’t understand that mindset. I appreciate their positive thinking, but how do they really know? We need to look at the numbers, check the score, and make corrections.
My advice to business owners is to know their numbers well and frequently compare actual results with expectations, using both the income statement and the balance sheet. Where are we compared to where we’d thought we’d be?
Projections are wrong by definition. We know that, but we’ve made certain assumptions for business growth and profitability. Plus, we generally approach growth as linear with a steady growth path. Growth is never linear. It’s up, it’s flat, it’s down, it’s up, repeat. The trend line is up, but the actual results can look like an EKG. Growth is tricky that way. The stair step growth graph, can make cash planning difficult. So, we need to make corrections based on data and real information.
Business growth is like sailing. Based on our strategy and vision, we know where we’re going, but when the wind shifts, or competition and obstacles get in the way, people or processes can’t keep up processes can’t keep up. We need to tack back and forth to get to where we want to go. We can only focus on so many things at one time, so use your financials to focus on the right things that make a difference.
To make sensible corrections, it’s imperative to a) have accurate timely numbers, and to b) review the numbers on a frequent basis so we know where we are and where we may need to “tack” to get there.
I’m working with a growing start-up now and things look good. Cash isn’t bad, and sales are pretty good. But, when you look under the hood, the company isn’t hitting their sales plan, payroll is too high, sales expense is out of proportion and cost of sales is too high. Their path needs a correction. Without timely and accurate financial statements, reviewed against plan, they wouldn’t have seen the challenges coming. The Company reviews a “Monday report”weekly and was astute enough to see a dip in a customer’s buying patterns compared to expectation and a dip in overall gross profit. They were able to make some focused changes and get things back on the right track.
Business owners must understand cash flow, gross margin, working capital, the entire balance sheet, and the P & L. Without regular and timely reviews, you cannot plan wisely for the future and develop path corrections along the way.
Tips: Have a process in place to get accurate timely numbers and financial statements. Get to know your numbers. Book weekly and monthly financial reviews on your calendar for the rest of the year now.