Envision this scenario: You need a business loan. You are expanding rapidly and need some new equipment, maybe a couple of laptops or additional inventory to sell. You’d like to hire a couple of people because the workload is huge and you just can’t keep up any more. When you go to the bank the first question they’ll ask is “What are your sales?” You draw a blank because all you see is the pile of bills and invoices stacked neatly on your desk. Accounting has now become an obstacle to your growth, and you have lost control of your business. It doesn’t have to be this way.
Knowing your numbers gives you credibility and peace of mind. There are people out there who can do the bookkeeping for you, but it is your responsibility as a business owner to know the numbers and how they got there. A good product or service is wonderful, but convincing people to lend or invest in you takes more than just having a good product or service. This is one reason why knowing your numbers is so important.
Another reason to know your numbers is so that you can avert disasters and nasty surprises like not having enough cash to make payroll or losing money on a customer project because you didn’t know what your actual costs were. Knowing your numbers helps you create a budget and a strategic plan that can forecast when you need cash and when you’ll have extra cash. Knowing your numbers means you can answer questions like, ‘which product is most profitable, is pricing on target, or can I hire someone to reduce the workload.’
Knowing your numbers gives you power. And yes, you have to put in the time to get comfortable with the numbers. As business owners the most dangerous way to manage your business is to depend on how much money is in the bank. This is a false sense of security – Net income does not equate to cash in the bank. Knowing your numbers and how you generate profits is a much more effective way to take back control, or better yet, avoid losing control of your business in the first place! Marcy Maslov was co-contributor to this press release.