Know the numbers

As a successful business owners you may prefer to be actively involved in the cut and thrust of the day to day business and to have little interest in financial accounts.

The thought of reviewing out of date accounts make you glaze over and reach for your headache pills. As your focus is to make money you leave the bean keepers to keep score and tell you how much tax they have saved you.

So, what information do you need to be able to control your business?

Let me share a story as a way of explanation.

Imagine that your business is a small motor launch that is moored at a marina on the southeast coast of  England. You want to take a small group on a trip across the North Sea to Holland.

The first step is to get stuck in and plan the trip.

So, ‘What do you need to know to plan the trip?

Here are some of the answers I commonly get to that question .

  • How far is it?
  • What is the weather forecast? The wind and expected tides.
  • How many passengers? So you can work out food and drink etc?
  • How much fuel will you need?
  • How fast is the boat and what is the fuel consumption?

I’m sure you will agree all worthwhile information.

But the first thing you really need to confirm is the exact location of the boat. Perhaps it was moved in the last storm and is now beached up a creek!

So, before you can plan your journey you need to know where you are starting from so that you will reach the right port in Holland and that the boat seaworthy for the trip.

In business the financial accounts give you where you are and what condition the company is in. Don’t rely on accounts that are ten months after your year end as the current financial position may have changed.

Knowing where you are starting from and confident that the boat is seaworthy you can now start to plan your journey.

Confident about the trip you can set off. Keeping an eye on your fuel guage, the shift in the wind and the tide you follow your compass bearing as you navigate into the choppy waters of the North Sea.

In business your course are your  budgets and forecasts. By watching the gauges, the relevant KPI (Key Performance Indicators) trends you calculate your progress against your planned course.

At regular intervals you must take GPS positions to plot your true position to confirm you are where you thought you were based on your gauges. If you find you have wandered off course and understanding the reason for the deviation you can make minor changes to your instrument readings to get back on course.

In business your true position is updated by your regular monthly management accounts. The accounts show where you actually are and how you have wandered off plan.  It is really important that the monthly accounts are as up to date as possible. It is no good knowing where you were 3 months ago. You may be off way off plan   but unable to rectify the situation.

Correcting as you go you arrive safely at your destination.

On time and stress free from a smooth and uneventful crossing.

Enjoy the journey, know the numbers.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.