One area that many entrepreneurs and small business owners undervalue is math. What do we mean by math? The ability to, at any moment, know the critical numbers that calculate whether you are profitable or not.
Most business owners know what money is coming in and what is going out. If you are getting more money in than what is going out then you should be doing okay right? WRONG!
Quick, what’s 19 percent of $8.35? If you don’t know that off the top of your head then your margin on a sale might be too low. Do you know your sales margin? Do you know for every product or service that you provide what the cost of producing that is, and then what percentage of your overheads needs to be attributed to that product and therefore what your profit margin is?
Quick, what's your break-even price? Can you lower your price in a negotiation? If you have a client try and negotiate your price, do you know how low you can go and still be profitable? If not, then you could be selling a product at a loss.
What about your costs? If you produce an item that requires raw materials, if those prices go up by 2% do you need to increase your sales price?
What about wastage? If you ran a restaurant you might know the cost of the produce for each dish, but how much food is wasted or spoiled? Do you factor this into your prices? If you are throwing away 30% of your produce you might be throwing away your profits!
Is your head spinning yet?
Business at the end of the day comes down to the numbers. Profit is a number. Cash is a number. You need to be able to buy or produce something for $1.00 and then sell it for $3.00.
Some of the most successful business owners are naturally good with numbers. They like numbers. They enjoy doing the math. They get daily reports showing them cash, sales, purchases and commitments. They dive into monthly analysis of their income statement and balance sheet. They are quick to calculate prices in their head and always know what to sell for how much in order to profit.
So, what if you're naturally not good with numbers? Can you still be successful at business?
Absolutely.... But you’ll need to be honest with yourself and take steps to compensate for this weakness. If numbers don't come naturally you'll need to make sure you surround yourself with people that are exceptional with them. This is for two reasons!
1. You can gain irreplaceable knowledge and learning from a numbers person to help you become more intuitive on the finances of your business.
2. Having accurate and meaningful financial information can help you make quick and decisive decisions to help accelerate your business.
We always advise our clients to ensure their finance team is capable of delivering superior outcomes for your business.
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