As Mr. Mark Cuban had said on an interview over a podcast.
“If you’re going to have and run a business, if you don’t understand accounting, you’re already behind the eight ball. Can’t I just hire a guy that that knows that? You might ask. But then they still have to communicate to you? You still have to review and understand the numbers. You can’t outsource the thinking behind your finances. There are people that don’t understand the concept of the difference between profits and cash, and your accountant might tell you you’re profitable, but your cash is going down.”
Of course, we totally agree with Mr. Cuban right here.
As a business coach, I am shocked and surprised at how often I speak with business owners who don’t understand the basic numbers and finances behind their business. And I’m talking about $3 million, $5 million businesses, $7 million businesses, $10 million businesses here.
They’re flying blind, essentially. And when you don’t know your numbers, you’re really flying blind.
And you can get into a lot of trouble when you’re flying blind. And what I would recommend, if you are a business owner who doesn’t really understand finances, who didn’t study accounting in college, or at least didn’t love it when you did, I would recommend two things to get started.
Number one is I would get my books in order.
Whether be on Quickbooks or WAVE or another good accounting software system, you have to make sure your books are in order. You can work with a bookkeeper, a CPA, an accountant, and then have on demand access to your P&L and your balance sheet.
You can definitely delegate and outsource the labor behind getting your books in order, but at the end of the day you are the manager and you must make sure it gets done properly and on time.
The P&L is your profits and loss, and the Balance Sheet is a balance of all of the credits and debits that are in the business.
You need to understand how to read those documents and review them regularly to understand what goes in, what goes out, what the actual cost of doing business is. In order to understand what you can charge, what you should charge, how much you can pay people, and how to make critical decisions in your business. When to be able to hire keep key roles, how to project, how to live on a budget, and all of the strategic decisions that come out of understanding finance as well.
The other thing I would do after that is build a Proforma.
A well built Proforma can help you so you can start doing some scenario planning around different decisions. We build those for clients at my firm. A Proforma is a simple but powerful tool that will help you answer questions like,
“If I increase my fees by X amount, how will that impact my bottom line?”
“This is how much I can I actually afford to pay myself.”
“This is when I can buy a new truck, or a new crane,”
“If I reduce my customer turnover by X percentage, what does that do to my bottom line?”
“If I decrease my expenses by X amount, what kind of impact does that have on my take home profits?”
“When and how much?”
It’s amazing to me how many businesses are really flying blind when it comes to finances, and it doesn’t have to be that way. You don’t have to live under that kind of uncertainty. And so, Mark Cuban has some great words of advice.
Lastly, I would build a 13 week rolling Cash Flow Forecast. If you are interested to learn more about this, reach out to team@cloudninebusinesscoaching.com and we’ll give you a free resource.
If you are struggling or flying blind and are ready to take your business to the next level so you can achieve your dream, don’t struggle alone. Reach out to us, we LOVE helping owners and leaders build beautiful businesses.
It causes a lot of anxiety to fly blind when it comes to the financial health of your business. It doesn’t have to be that way though. There are better ways, less anxious ways, of managing and running your business.
Set up a free call today with a business coach to help you review your finances and see if there are some quick wins that will help you immediately (Click here to set up a free call)
-Chris Cloud and the CloudNINE Team
