“I don’t do numbers!”
“What’s a P&L?”
“If I write it down, and don’t attain it, then I’ve failed.”
“I keep track of my expenses in my check register.”
Personally, I do numbers …. but, I have heard the above comments from an entrepreneur or business owner when discussing the current and/or future finances of their business. This “fear” of numbers can manifest itself in a few different ways.
On the forward-looking side, there is the owner who doesn’t want to do any financial projections as the numbers would be “meaningless” because they would need to change over time. Or, the business owner who felt that if they didn’t “hit their numbers” that would be an admission of failure, so they don’t want that measure “hanging over their head”!
On the past performance side, there are owners who manage their business based on how much money is in their checking account – one potential client actually handed me their check register when I asked for a view of their year-to-date expenses.
Projections are just a reflection of the underlying assumptions you’ve made about the future of your business – which in turn are based on your business strategy and tactics. As your strategy and tactics are further developed or change, so the business assumptions will change, and therefore so will your financial projections.
Not wanting to put together financial projections or a budget usually means you are uncomfortable about the assumptions you’re making about your business; so, you need to resolve as much of that uncertainty as you can, AND live with the fact that any future projection will not be perfect and will need modifying as you learn more.
Historical reports are just a reflection of how the business performed. The important understanding for the business owner isn’t what the numbers are, but why they are that way.
When reflecting on how your business has performed financially, there are three reports that are important – your Profit & Loss statement, Balance Sheet, and Cash Flow statement – you need to be able to read and understand them. Understanding the difference between what your Profit & Loss and Cash Flow statements are telling you is important. While you’re still worried about “break-even” or if you have a seasonal business, the Cash Flow statement is going to be most important in understanding your ability to cover your monthly expenses.
As a business owner, you need to be able to say “I understand my numbers”.
THINK PLAN EXECUTE‘s Business Algebra services are designed to help you get CLARITY about the business assumptions that support your financial projections, put STRUCTURE around how to achieve those projections, and monitor and manage your RESULTS against them.
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