Profit  (Lesson 3)

I deal with a lot of businesses that have a turnover over a million dollars a year, and the vast majority of them really struggle with understanding the numbers. In fact this is the biggest single obstacle most of them face in growing much beyond where they are now.

Here are the most common financial issues I find when I start working with a company:

  • They don’t understand how to correctly read their profit and loss
  • They don’t have a proper budget
  • They don’t fully understand how to do their balance sheet
  • They don’t know what their break-even is
  • They don’t know what their cashflow forecast is
  • They don’t know the cost of doing business
  • They don’t have financial KPIs in place

The unvarnished truth is that a business can survive without having a firm grip on those numbers, but there’s no way it’s going to successfully grow to the next level. To reach your true potential, you need to live and breathe the key financial data.

When I worked on the corporate side I made a point of keeping up to date with the most vital numbers. In fact it was usually the first thing I did when I reached my desk in the morning. I had a list of things to find out from the previous day – total sales, total gross profit, number of transactions and a few other things.

Having access to that data gave me a real edge as an executive. When you can put your finger on this level of detail you can make the smart decisions that will drive your business in the direction you want it to go. If you’re determined to expand, this is a habit you really need to get into.

So where are the majority of small and medium businesses going wrong? Why don’t they pay as much attention to the figures as they need to? I think it’s down to the way most businesses develop, and it’s really pretty understandable.

When you start a business you’re focused on delivering the service you’re an expert at and, as long as the bills get paid and you have enough to live on, the financial side gets put on the back burner. At first, the focus is on other things – setting up, finding customers and building a reputation. Then, before too long, it all gets complicated and scary-looking, and unless you’re an expert accountant it seems wise to just leave it alone. After all, it’s working, and who wants to risk breaking it?

Unfortunately it only works up to a point. If you’re going to break out of the small business bracket and build your turnover to five or ten million dollars a year, the finances need to be brought firmly under control. You might be able to do that yourself, but it’s often better to hire team members with the expertise to do it for you.

To your success,