Figures Lie and Liars Figure

One of the five business dangers that I often talk about is the lack of financial understanding.  What that means for many business owners is that they fail, or underachieve because they don’t really understand their financial position, or their financial performance.

Many business owners might rationalize that they have a great “feel” for their business.  Enough money comes in to pay the bills, and hopefully even leave a little something left over for them, personally. For many, it is not enough to just pay the bills or themselves, but also to pay off debt or to invest in improvements, and often the cash isn't there.  The easy answer to this dilemma is to increase sales, but although that is an obvious choice, the execution doesn’t always work out so well.

The point is that business owners who take an interest in knowing their numbers, understanding at least basic financial reporting, and having good reporting systems in their business are more successful, period. They make better decisions, improve team performance, have more cash, pay themselves more, etc.  How do I know this?  Because I see it every day in the many businesses I work with.

Sure, financial understanding may appear boring.  Frankly, I have a degree in Accounting, but I left the accounting field because I found it unfulfilling for me.  So I get it.  But my accounting awareness has paid off in my career in untold ways.  So boring or not, it is important for business owners to remind themselves that it is a key, maybe the most important key, to reaching the goals for the business.

Your financial performance is like the dashboard of your car.  It tells you if you have enough gas in the tank, how fast you are going, how far you’ve come, if there are any dangers due to engine problems, if your seat belt is buckled, and what radio station you are listening to.  Your financials can tell you if you have enough cash in the bank, cash going out, or cash coming in.  They signal the level of sales and the performance of your team.  They warn of signs of trouble ahead in the form of pending liabilities or inventory that’s not moving.  They confirm that your pricing policies are sound and your buying practices are effective.  Without that dashboard, you could crash and burn, or at the very least, need to crawl along slowly so as to avoid danger.  That’s not the way to run a successful business.

Learning a little bit about what your numbers mean and how to interpret them is one of the strongest pieces of advice I can give any business owner.  Sharing and educating your team about the numbers can take your performance even further.  Find someone to help educate you on this vital “system” of your business.  Make sure your accounting practices are accurate, and up-to-date.

There’s an old adage, I learned long ago that I think is very appropriate when thinking about accounting systems.  It is, “Figures Lie, and Liars Figure”.  Everyone focuses on the “Liars Figure” part of this and nod knowingly about people who use numbers to twist facts in their direction.  But think about the “Figures Lie” phrase.  If your numbers aren’t accurate or up-to-date, or if you don’t understand what they mean, your numbers will give you the wrong story, and lead you in the wrong direction.  So please, get a handle on your numbers, and use them to point your business toward success.