How well do you know your numbers?Mar 10, 2016
Most people that know me well know that I love looking at numbers. I love creating budgets and expense tracking sheets to manage both my personal and business expenses. I love to look at how my business makes money and look at different opportunities to bring in additional sources of revenue into my business. However, I find most business owners do not do this.
How does your business make money? Yes, you may have product(s) or services you sell, but there are so many different areas to consider in terms of how you make money. Who are your strongest customers, and which outlets do you make the most money from? How profitable is your business? Just because you have high sales, doesn’t mean you’re profitable! You’ve got to understand the financial health of your business.
It’s unfortunate, but finances tend to be where most small business owners tend to fall short. Entrepreneurs are highly creative, and there’s so much we have on the go, and sometimes the numbers part is what we tend to look at last. However, I’m a firm believer that you really need to look at your numbers and understand your numbers on a consistent basis. Understanding your finances allows you to make the right business decisions, know how healthy your business is, and help you build longevity in your business.
Take time to sit down and add all the numbers. Do not be afraid of the numbers. When you’re afraid of the number, and ignore them, that’s when you get into trouble. Set an annual (yearly) target and then break it down into monthly and weekly targets. Depending on how big your business is, you may want to start with monthly, but I really love breaking it down into weekly targets.
When you set your sales targets, don’t forget to take into account your own basic needs. Some business owners tend to budget solely on their business expenses. That’s great if you have a full-time job and you’re bridging your business. However, if you want your business to sustain you and you want to run it full-time, you really need to take your personal expenses into account.
You also need to also understand your break-even point. Your break-even point is the point where revenue actually starts to cover your expenses. The more money you make on top of that goes into your profits.
Start tracking the return on all the activities you’re doing to build your business. So, if it’s Facebook marketing, your email newsletter– how are those converting? You need to know how much money you’re getting in return for all the money you’re spending to bring in sales.
Taxes are another great thing to consider. A lot of small business owners miss this completely, and I’ve been guilty of this too in the past. What tends to happen is we forget to set money aside for taxes. But once you do your taxes, especially when you start making profit, you’ll have to pay taxes, and depending on how much profit you made, you may get a big tax bill. If you have not been setting any money aside for it, it will leave you scrambling to get money to pay for the taxes. Furthermore, it will cause you so much stress and energy. The stress and energy then takes your focus from running your business to worrying about finances. Always set some money aside, especially if you’re making profit to pay for your taxes.
There’s so much I can write about this, and feel it’s so important to the success of your business that I dedicated a whole module in my 4-Week Business Success Bootcamp online program to ‘Know your Numbers’.
I like to say, ‘your numbers tell you a story’. That story will show you how healthy your business is and areas you need to improve to make it more successful!
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