October 10

Strength In (knowing your) Numbers

I recently spoke with a new client about his financial situation. He knew he wasn't earning as much as he wanted and as the conversation progressed it became clear that he had no clue what his business was earning every month. When pressed, he looked at his numbers and realized he had only made just over $1000 in the previous month. That was a shock to his system to say the least.

The right numbers are great motivators. If you aren't paying attention to your numbers, you are flying blind. Some of the numbers you should pay attention to are going to be purely for accountability, they won't show up on a bank statement, but they will help you grow your business.

I am helping one of my clients obliterate a 5-year fiscal obstacle. She had plateaued financially and didn't know how to increase her revenues. During one coaching session, I encouraged her to identify the numbers that were important to her. With her attention focused on her numbers, she made almost immediate strides forward. She is on track for a 50% revenue increase because we got serious about her numbers. True story.

Helping my clients see their numbers is always an enlightening experience. Most small business owners don't know their numbers. Too often they become so tied up in running the business that they come dangerously close to running it into the ground.Small business owners need to know important financial numbers.

Many small business owners practice what I call bank statement management. Their only understanding of their financial position is based on what's in their bank account at any given time. This puts them in a reactionary loop and they only notice a problem when the bank account dips.

Unless you love numbers, you probably glaze over when you have to review your financial statements. Many small business owners outsource the accounting process, which is usually the right thing to do. Outsourcing the accounting function doesn't relieve you of the responsibility and accountability for your business.

Your business. Your responsibility. Period.

Here are several KPIs (Key Performance Indicators) that every small business owner should know cold

Profit/Loss month to date 
It might surprise you, but too many small business owners don't know this one. The usual response is, my accountant knows. Unfortunately, that's not good enough. It's not your accountant's business. Ask them to send you a profit/loss weekly statement at the very least. You should be able to see where your money is coming from and where it's going. If you are using an accountant or handling your books yourself, you should keep your 30-day revenue numbers in view at all times. This is a report you want to see every week.

Why profit and loss? Because revenue alone is good, but it can be misleading. If you made $10,000 last month you celebrate. But that fiesta is cut short when you realize you spent $11,000 during the same time period. Profit and Loss statements help you see that.

YTD Revenue
Almost the same as above but the time horizon dates back to January 1 (or whenever your fiscal year starts). This report helps you understand the trend of your business over a longer period of time. This number is so powerful when it is out in front. This is a report you want to see every month.

YoY Growth
This allows you to see where you are based on last year at this time. Are you ahead of where you were this time last year? Knowing that you are 5% ahead or 5% behind last year is great information to have. That number causes you to ask new and better questions like: Why am I ahead? What changed? What can I do to stay ahead or get back on track? These questions are going to help you focus on the right revenue generating activities. This is a report you want to see every month.

Here are some of my personal KPIs (in addition to the ones above):
# of Keynotes
# of New clients per month
# of Proposals submitted
# of Sales Conversations
# of client sessions

If you have a firm grasp on your numbers, good for you. If you don't, get those numbers in front of you as soon as possible. I recommend weekly and monthly reports and I know some people will say you should see those number quarterly. The problem with seeing your reports quarterly is the three-month lag. If you're not hitting my targets in January, why should you wait until April to know? When handled this way, the quarterly review is just that a review. This schedule helps you identify and resolve problems quickly.

The numbers you consider important may very well be different, but the point is that there is strength in knowing your numbers. Let me know what numbers you keep track of, what's important to you.

About the author 

Dr. David Arrington

David a husband, father and the principal of Arrington Coaching. He and his team work with leaders, teams, organizations, and entrepreneurs. He regularly speaks and writes on leadership development, team alignment, and peak performance.

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