Understanding Your Financials
Here is one thing I know for sure: If you don’t manage your numbers, they will manage you.
Working with entrepreneurs globally, I see that many only pay attention to their numbers at tax time. The only concern is “Do I owe anything?”
I believe we should manage our numbers every day.
There is a big difference between the numbers you need to know and the numbers you give to your tax accountant. It is important, for example, that you understand the cost of making your product. You have to avoid estimating the cost based on false assumptions, then learning later that you are losing money with each sale, all because you misunderstood or miscalculated. It’s easy to point the finger at your accountant, tax preparer, or others, when the real dilemma stems from you not understanding where the numbers belong.
The numbers you need to understand fall into four categories:
Sales & Marketing: What are the numbers you need to understand, from pipeline to purchase? What numbers do you run daily, weekly, or monthly from a sales perspective?
Operations: What numbers do you run daily, weekly, or monthly to keep the business running? Operations are everything from staffing to production costs, once the sales and marketing is done.
Financial Forms: How do you read and interpret the forms your tax person or accountant gives you? Where should you focus, whether you are starting up or in growth mode?
Forecasting and Being Fundable: What do funders want from you? How will you create a reasonable forecast for your business? What does it take to be “fundable”?
BEFORE YOU GO:
We see our blogs as opportunities for dialogue. Please share your thoughts as comments.
- What have you already done to track your numbers?
- How effective has your tracking been so far?
- What suggestions do you have for new entrepreneurs regarding their numbers?
Faris Alami is Founder and CEO of International Strategic Management, Inc. (ISM). He works internationally, presenting Exploring Entrepreneurship Workshops and other entrepreneurial ecosystem — related ventures.