If you’re a small business owner then you have a dream. You can see it, you can feel it, you can taste it. Having the dream is the first step to making it a reality. But then what?
There is so much, isn’t there? More than I can put into one blog post. And of course, you can’t do everything all at once. In fact, being successful means you have to understand how to set priorities and follow through on them. Your dreams depend on it.
And while you may not dream in figures, the simple truth is that the numbers will make your dream happen or cause it to fizzle.
Let’s talk about the numbers that go with a successful small business. What are the numbers you need to know? It’s all about finance and money. There are some basics that you need to understand and know where you stand at all times. They create the road map for where you are going and are the basis for the decisions you need to make.
Business development keeps the doors open in your business. You need to constantly be actively engaging new customers in addition to servicing existing customers and nurturing prospects. You must know what is in the pipeline and keep filling it up: the number of clients and the number of prospects.
Without getting too technical, cash flow is the actual money coming in and going out of your business. If you run out of cash, the company will cease to operate. Many variables impact cash flow such as sales, collections, and expenses. Maintaining a good cash flow can be a challenge, but it is the lifeblood of your operation.
Profit and Loss
A P&L is the summary of the revenue and expenses in a company over a specific time frame. It will tell you if you made money or (drat) lost money. Evaluating each month will guide your direction and help you make informed decisions. You may “think” things are good, but a profit and loss statement will illuminate the reality of sales and expenses.
Don’t confuse the P&L with your Balance Sheet. This document is a statement that shows what the business is worth at any point in time. There are three parts to a balance sheet: assets, liabilities and ownership equity / capital. Again, reviewing the balance sheet on a regular basis shows you the direction your company is taking.
Working capital is a measure of a company’s efficiency and overall health. It is the difference between current assets and current liabilities, adding in accounts receivables (what you are owed) and deducting pending liabilities (what you owe others). Monitor this number monthly and you will see the direction your business is heading.
This may all sound very “corporate.” Perhaps a desire to avoid the big business grind might be one of the things that drove you to become a small business owner. However, knowing your numbers is essential to know not only where you are, but to start building the road to the success you want to achieve.
So let’s review: at all times, someone should be able to quiz you and you’ll know:
- The state of your sales pipeline
- Your current cashflow — in particular your receivables and payables
- The outcome of your last P&L, and why that happened
- What’s on your balance sheet: assets, liabilities, and equity.
- Your available working capital.
And if you’ve got an accountant who knows these, that’s even better!
If you really want success and want to build a profitable business, you’ve got to know your numbers, set goals and develop strategies to grow. You can do it!