Whether you love numbers or not, there are some financial questions you need to ask yourself. Make sure to pay attention to these five things or else your business will suffer.
Categorize Your Numbers
Know your numbers
Leading numbers vs. lagging numbers
You’re numbers aren’t intrinsic
Focus on a few key goals
Categorize Your Numbers
A lot of people starting out ask me about budgeting advice. My best advice is that you have to remember that the numbers are for you. Make sure that you’re not just handing everything over without verifying and make sure you’re asking the right questions. If you decide to hire out right away, most bookkeepers will just create standardize buckets that give you an overall sense but don’t really break it down to help you clarify your projections. For example, I let my bookkeeper create my categorizes, assuming she knew better than I. The next year I went to go budget my marketing costs and realized they were all lump summed into this big bucket and I really didn’t know how to budget for the next year. After dissecting them later, I broke up my marketing umbrella into print, advertising, services, and events. From there, I was able to budget and project with a better understanding of my breakdowns and could construct different scenarios better. Remember, these categories are for you, not the IRS or your accountant.
Know Your Numbers
It’s not how much money you make, it’s how much you keep! You may be just starting out or a little more established but you still need to understand your margins and your tax structures that will help with cash flow as you grow. It may seem premature to get solid advice in the beginning but when you start making good money, you don’t want to have to restructure your platforms when the revenue is pouring in. Like all of your business, you need to forecast the direction you’re headed. The clearer that is, the better advice you’ll receive because your accountant will know how to help you.
Leading Numbers vs. Lagging Numbers
Lagging numbers are different then leading numbers so make sure you know the difference. They’re both relevant but a lot of people pay attention to the lagging numbers. If you think of driving a car, the leading numbers are the road ahead and the lagging numbers are the rear view mirror. For example, I own a salon and we pay attention to a lot of numbers including retention, which means if I give a staff member 10 clients, how many will come back? The problem with that is, by the time I get the numbers 8 weeks later, the damage is done. The lead indicator would be rebooking at the time of the service, how many of those 10 clients does our stylist get to schedule ahead of time and put on our schedule. The lead number of rebooking usually indicates the success of the retention number so in order to change any behavior, we focus on how to get clients on the books before they leave. You want to continuously look for leading numbers which helps drive your business and behavior.
Your Numbers Aren’t Intrinsic
Numbers tell a story but they tell the story of behaviors. If your margins aren’t up, the process is probably broken along the way. If your service revenue is down, the service quality is usually down. If your close rate is low, your buyer is usually confused or doesn’t trust what you’re saying. If staff retention is down, they may have lost their purpose or leadership. The point is, that the behaviors drive the numbers and the numbers don’t drive behavior so pay attention to the numbers to look for the story they are telling. Some people who love the numbers can get caught up in them and pay too much attention which can create poor decisions that are only number focused. Then there are people who don’t love numbers typically ignore them and pass them off so make sure you’re utilizing the numbers correctly. Remember, it’s 70% relationships, 20% marketing and 10% numbers.
Focus on a few goals
There are SO many numbers that it can get overwhelming but I suggest to focus on 1-2 goals to really help drive your business. You can’t possibly focus on 10 goals at a time, it will become unclear and you will lose sight of some key drivers and run out of steam. If you have a team, you will lose them too so keep it simple. Think of it like a dash board on an airplane, all the numbers are important but when flying the plane, you’re only paying attention to a few. Your goals should be about 3-6 months and then you can refocus on different numbers when needed. Keep it simple!