Numbers Tell You Everything About Your Business
Everything in your business is numbers. You may not necessarily be aware of that, but if you really think about it, everything in your business consists of numbers. And your numbers tell you everything about your business.
- The amount of hours you work
- How much money you make
- Your spending and investments
- What you spend your money on etc.
Whether we are talking about your balance sheet, your profit and loss statement, your cashflow statement or any other report. All these management tools are based on your numbers. Thus, your numbers tell you everything about your business that you need to know.
Why numbers tell you everything about your business
Take an annual report of a stock-listed company and go through it. You can read so many things out of these files that you may not even be aware of.
First of all, you can see what the core business of the company is, how they make their money, and even what they spend their money on. Thus, you can pretty much see their strategy.
When you see what businesses spend their money on and how they earn it, you can understand the business model. You will be able to identify what they’re investing in, and what their next big plans are. Do they invest in software, in buildings, in people, in consulting? What do they focus on?
Publicly listed companies must publish their statements for their investors. Check their websites or simply google for it. These statements don’t only contain the numbers, but they also explain the situation. You can read about their decisions, the challenges they faced and how they tackled them.
Another thing you can see in reports, is how stable a business is. You can see how much cash reserves they have, and how long they can survive as a business even in bad times.
Ask the right questions as a business owner
Your job as a business owner is to ask the right questions on the numbers that you get. Most importantly, you will need to learn to ask the right questions when looking at numbers.
Numbers in a report can mean anything and nothing. They only show you the status quo. But what they don’t tell you at first glance is what caused these numbers. You have to learn to understand which questions you have to ask, at which point in time regarding which specific numbers to understand what is really going on in your business.
To give you an example, you may have low registration numbers for your upcoming event. That number alone doesn’t really tell you anything. It tells you that you don’t have enough registrations, but what’s the reason for that?
Now you have to start digging in:
- Was the marketing not effective?
- Have there been any other issues? Technical issues, maybe?
- Did we not reach enough people?
- Maybe we targeted the wrong people?
- Did the prices change?
- Is the location maybe an issue?
- Do we have any comparable numbers to look into? Has this same even been done in the past and how did the numbers look back then?
The number is a clear result of something that happened in your business. But analyzing the resulting information is what really makes the difference. When you understand the story behind the numbers then you can fix the issue.
A practical example
I have been once at an event where we had to analyze an investment property. The question was whether to keep the property or whether to sell it off.
We only received the current numbers and they looked really bad. Thus, most people said it would be better to sell it off.
But then we started raising questions:
- Why is the investment costs that high? Is this an old building? Did this investment cost increase over time? What’s the reason for this?
- How is the occupancy rate? And is this in line with other comparable houses or not?
- Are the earnings good or can they be increased?
Then we got some background information from the owner. The owner said that this property was historically one of the most lucrative ones. This raised the question: What happened?
To keep it short: The previous housekeeper had passed away and his son did a really bad job. The son did not rent out two flats, but rather kept them for himself to store his stuff. On top, he used the “maintenance” account to cover his personal expenses – pretty much stealing money. Thus, the housekeeper was fired, the two flats were rented out and suddenly the maintenance expenses went back to normal levels and the property was highly profitable again.
That’s the power of numbers and asking the right questions to understand the story behind it.
Understanding your numbers is changing everything
Numbers are not boring at all. You will love number’s once you understand how to read them. And once you understand them, you will make much more informed decsions.
Understanding your numbers will navigate you through tough times and get you to your targets faster. You will be better, faster, and more efficient by monitoring them closely. This will help you save time, energy, and money.
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