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.
