Managing Your Numbers Is Essential for Growth
Wednesday, June 9, 2010; 12:00 AM
Do you want to do everything you possibly can to ensure the survival and growth of your company? Of course you do. Well, one of the most essential skills that you can bring to your company is understanding, tracking, and using certain numbers.
This numeracy--thinking in numbers--is a vital, vital skill.
Let me explain. In my experience, far too many people feel that they aren't good at math, or didn't take accounting, or whatever. Using this as an excuse, they hire someone else to watch the numbers for them. This is two mistakes in one. First, they're selling themselves short. Anybody can work with numbers, and the kind of number-tracking I'm talking about requires no advanced mathematical training or professional degree. Second, there's no substitute for you in this process. Nobody else out there is as motivated as you are to get the numbers working on behalf of your business.
Yes, your accountant can prepare your P&L statements, tax returns, and balance sheet and offer certain kinds of advice based on rules-of-thumb and industry norms. (By the way, an accountant with lots of experience working with companies like yours can be a gold mine of comparative information.) But you simply can't count on quarterly meetings with your accountant. In order to run your company properly, and dramatically reduce your risk of failure, you need to get access to certain numbers quickly, and use those numbers effectively.
Here are the numbers you should have at your fingertips:
a snapshot of the company,cash flow statements that are regularly updated,cost analysis of your product(s),break-even analyses, both for the company overall and for each new product.
Here I will only discuss the snapshot of the company. My goal is to get you comfortable with these numbers--by which I don't simply mean that you'll be able to generate them, but that you'll understand them and be able to adapt and use them effectively. In general, my prescription is, Know and love these numbers! Note, I am not saying you have to prepare the snapshot yourself. When you're small, you can have your accountant or bookkeeper prepare them for you; and if your company grows to the point that you can afford a chief financial officer, then she will take responsibility for preparing the numbers.
I call the following chart the Company Snapshot because I want to convey the idea that it's quick to read and absorb. I've done it weekly because that's been the interval that's proven most helpful to me in my businesses. One manufacturing company I've worked with does a similar report daily. Depending on the nature of your business, you might find a bi-weekly report adequate, particularly during slow seasons. In certain situations--for example, where your company is temporarily flush with cash--you may decide that a monthly snapshot is adequate. But you can't make that decision until you understand the snapshot, and how your company performs against that snapshot. So my advice is start weekly, and adjust as necessary.
The snapshot is meant to be simple. It's meant to be easy to prepare--your secretary or bookkeeper should be able to do it--and able to be digested by you in no more than five minutes. Depending on the specifics of your business, you may want to add or subtract categories from the following exhibit. You might also want to use comparatives from a prior period. Just remember: Keep it simple.
Current assets:______________________Cash, reg: ______________________Liquid assets:______________________Receivables:______________________Other: ______________________