How To Decode Your Business Numbers

Contributed by Brian Ochsner

When reading a company’s income statement or balance sheet, some folks might as well be reading Greek. That’s because they don’t know what the numbers mean.

A better way to think of your business financial statements is like a scoreboard at a sporting event. They tell you how well–or poorly–your team (or business) is doing.

They can tell you different things, such as:

• If you’re bringing in more cash than what is going out
• Who your best customers are, and what they buy the most
• If you can afford to purchase software training, or is it better to take free online training, or learn Microsoft Money.

And many more!

People have their own unique ways of interpreting and assimilating information. If you don’t know how to accurately read and interpret financial statements, you may want to hire a bookkeeper or a CPA until you get up to speed.

You’ll also want to learn business accounting software such as QuickBooks®, or maybe learn Microsoft® Money.

Another good resource is the book Rich Dad, Poor Dad by Robert Kiyosaki. The author writes in an easy-to-understand style, so even a business novice can understand the basics of financial statements.

It’s also a good idea to have a business team working with you. This team should consist of people who are knowledgeable, competent--and preferably successful—in the line of business you want to start.

Take a self-inventory of your skills. Do you have the sales, bookkeeping and industry knowledge to succeed? You may have to take online or college classes, such as QuickBooks training.

Here are the most important facts that the numbers in your business books will tell you:

• Am I making money? Sounds pretty obvious and basic, but as a business owner this must be your first priority. I understand some business owners put a higher priority on helping others than making piles of cash. And that’s fine. However, you can’t help anybody else if you can’t help yourself. Charity begins with yourself and your business.

• Who are my most profitable customers? A profit and loss statement won’t show this, but examining where your sales and cash flow are coming from will. Once you know this, I recommend asking them what they like best about you and your business. Plus – ask if they could refer other like-minded people who could benefit from your product or service. On top of this – ask your top customers what they would like MORE of! This will help your business profitability and stability.

• How stable and how sustainable are my finances? Take a look at your monthly and quarterly profit and loss statements with your accountant or financial planner. I know more than a few entrepreneurs would rather scoop horse manure than get a J-O-B working for an employer. However, you and the team you’re working with need to be brutally honest about how well your business is doing today and may do in the future.

• Is my business meeting a high-demand need in the marketplace, and will it continue to do so in the future? This isn’t necessarily a financial question, but the numbers in your books will give you a clue about this. If sales have been trending downwards because of waning demand, you may want to consider changing products – or even complete product lines. Remember, your job as a business owner is to supply what the market demands. It’s not your job to educate or do “missionary marketing,” trying to convince them why they should love your product as much as you do.

• Can my business manage the normal operating expenses and interest payments on debts? Being over leveraged is one of, if not the, biggest business killers out there. Look at the balance sheet of any publicly traded Wall Street company that’s in financial trouble. It’s almost always due to bad management or HUGE amounts of debt.

• Based on the financial results from my business, do I have the skills necessary to be successful? This is another difficult question that you and your team have to ask and you have to honestly answer. Good feelings or the number of people you’re helping don’t always pay the bills. The amount of cash that you’re making is how you measure your business ability.

That’s the good, bad and ugly of how your business numbers are communicating to you. I’ve had to look at bad numbers myself. The best advice I can give is to view those not-so-good numbers as feedback, and not failure.

All successful business owners have gone through not-so-successful times. It was what they learned from their setbacks that propelled them to greater success. Learning what your numbers are communicating to you can help you do just that. Best of Success in your business efforts!

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About the Author:
Brian Ochsner is a freelance copywriter living in Denver, Colorado. His blogsite is: http://DenverCopywriter.Blogspot.com, e-mail is DenverCopywriter@hotmail.com.

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