Avoid Costly Mistakes by Knowing Your Numbers
How is your bookkeeping process going for you? Do you generate profit and loss statements? Do you understand them? Do you simply pay the bills as they come in and hope there is enough left in your business account to feed the family or do you have a system in place that will help you forecast your financial future?
By now you are either rolling your eyes or sinking into your seat. If it's the latter, you may be thinking, ‘Who has time for numbers'?
Many solo business owners are so busy working in their business that they're happy to simply make ends meet. 'Someday' they will take a crash course in QuickBooks and figure out what their P&L's are saying, but right now it's sink or swim. Sound familiar?
The bad news is that you will sink farther than you can swim if you don't run your business by the numbers. Let me give you some real life examples:
'Joan' was thrilled to report to her coaching session with news of a 12% increase in sales year-to-date. Fantastic! But the thrill didn't last long when we walked through her reports only to discover that she was down in profits by 4%. How could that be? Being a busy solopreneur who is working IN the business, Joan didn't realize that the spreadsheet she uses for her bidding process had an error in it. As a result, she was underbidding business for the past 4 months. Ouch! Her cost of goods and outsourced labor ate away at her reduced profit at a steady pace. This was a deadly mistake that could have been avoided with weekly visits to her Profit and Loss statements.
'Bob' was great at pulling his numbers every week, but not so good at studying them. An entire quarter went by before he realized that his shipping costs had escalated in staggering amounts and were seriously eating into his profits. The good news is that Bob assigned the task of researching other shipping options to his very capable intern and together they implemented a procedure that brought costs under control. The bad news is that Bob lost a lot of money in this year's first quarter that could have gone into his pocket.
'Tammy' grossed over $250,000 in her business the year before she came into coaching. Within several sessions Tammy learned that she didn't profit a dime. She had been operating her business for three years and would take money out as she needed it and put money in when her business account ran low. Since her husband made great money, their personal finances didn't suffer but Tammy's belief that she was a successful business owner plummeted when she learned the reality. She never once studied her numbers. The good news for Tammy is that she learned how to operate her business like a business rather than a hobby and began creating profits in months.
There are many reasons that business owners neglect their numbers. Here are some of the ones I hear:
- I don't understand them so why bother?
- Things seem to be going just fine. As long as I'm making money what difference does it make?
- I don't have the time; I'll get to it someday.
- I'm afraid of what they will tell me. What if I find out that my business is a failure?
- I can't afford a bookkeeper.
- It's just me; I'm a solopreneur, why do I have to keep track of the numbers?
- I just don't know where to begin.
If this article strikes a chord, please learn about this important aspect of your business. Here are some things you can do to learn how and to have the support that you need:
- Hire a coach
- Go to your accountant
- Visit your local S.C.O.R.E. office
- Find a mentor or fellow business owner to help
- Hire a part time bookkeeper
Whatever path you choose (and there are many options) make this a critical goal and you may be rewarded with stronger profits.
Do you have a P&L nightmare to share? How did you resolve it? What did you learn?