Inspiration

Learn to love the numbers

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As an accountant numbers mean everything to me.  I work with them day in, day out. I read the story they tell me like I am reading a book.  I strive to attain higher numbers for results and lower numbers for taxes paid. Without doubt my left brain is more active than my right brain.  This is a good thing as numbers matter in business, especially in the type of work I do.

Many women fear numbers and it is time to overcome that fear for the sake of your business.  Women start-up businesses are often based on more right brain pursuits, those that are artistic, creative and imaginative.  There is a common believe among some women that they are not good at finances because they were not good at maths when they were at school.  Without a basic understanding of the numbers it is very difficult to run a successful business. Here are three tips to follow if you are not a numbers person but know you should be interested, for the sake of your business.

Start with what you know – your expenses

Whether you are new to business or you have an established business you need a road map to guide you in the right direction.  The financial part of that road map is a called a budget. When someone asks you to prepare a budget it sounds like an overwhelming task and can easily be put into the “too hard” basket.

You should be able to do this in a simple spreadsheet.  If you do not have the skills ask for help, but this is YOUR budget, so you will need to provide the input.  You need to own the process.  

There is a natural tendency to start at the top of the page with the Revenue.  I find it easier to start further down the page with the expenses. For each expense item think about the following two questions;

  1. Is this expense a necessary expense or a discretionary expense?  
  2. Is this expense a fixed cost or a variable cost?

Start with the necessary fixed costs and list them out.  This may include things like telephone, internet, software subscriptions and essential wages.  They should be roughly the same amount each month or year.

Next move to the necessary variable costs.   This is where you may need the help of a friend who loves numbers as you will need to put a formula into your spreadsheet.  A variable cost should be based on the number of items you sell. For example, to produce one unit of your widget it costs you $20.  If you sell 100 units it is going to cost $2,000. If you sell 1000 units it is going to cost $20,000. The amount you spend depends on how much you sell.

Continue with your discretionary expenses – those that are nice to have but not absolutely essential for the business to operate.  They may be fixed or variable.

Taking the time to look at these items and list them out will give you a clear idea of what you need to sell to break even.  If you have created this in a spreadsheet you can put in various sales figures to calculate the variable costs and find your breakeven point.  

Move to the unknown – revenue

You cannot force someone to buy your product so your revenue is an unknown factor.  You can set targets and sure up customers based on the type of business you have, but little is guaranteed.  In order to set sales targets you need to know how much you have to cover to meet your expenses and earn a profit.  

Think about what you sell and how much you can possibly sell as a starting point.  For example, if you sell your time there are only so many possible hours available to sell.  If you sell something you make, there is a time factor that needs to be applied the creation.  Consider what is possible and set a realistic, achievable target.  

If the resulting profit from your target is not enough, you need to go back and reassess your budget.  Are you spending too much and is there something that can be cut? Is there a way to increase your revenue? Are you not charging enough and will your market decrease if you increase your prices?  This is starting to sound like a business plan and now you can be a little more creative with your answers.  

Become obsessed with just a few of the numbers 

The first time I ever purchased shares on the stock market I had a new obsession.  Each day (and sometimes a few times a day), I would check my account to see how much money I had made or lost.  It was the surprise element that I looked forward to. It was almost like opening your exam results – you are hoping for a good result, over the moon if it is a great result and disappointed if you have failed.  There is that split second of anticipation between opening the letter or logging onto the website when your heart is racing as your eyes scan the page for your mark.

Imagine feeling that way about the numbers in your business.  There is so much information to absorb so limit it to three to five figures and obsessively look at them each and every day.  Feel joy when you have met your target, or concern if you have not. Be knowledgeable about your position on your road map.

My four figures are cash in the bank, month to date turnover, month to date profit and outstanding accounts receivable.  It is literally the first thing I look at when I get to work each morning. I know our targets and I know what we need to do to reach them.  I do not want to be surprised if we do not reach them. Looking at them every day gives me time to find adjustments within our business to meet our targets.

From my experience the most successful business owners know their numbers intimately.  Left brain people can spark their right brain by looking at art, listening to music and trying to be creative.  If you are a right brain person find a way to spark your left brain. Keep it to a few simple numbers to start with and you may just surprise yourself with where your new interest in numbers can take your business. 

About Joanne McCauley

Joanne McCauley is a CPA accountant with a passion for helping small business owners get the best results. She helps them to understanding how the tax system works, incorporate technology into their business, and interpret the information the numbers are telling them. As the Managing Partner of Jigsaw Tax & Advisory, Jo has many years of experience in tax and accounting. Noticing a trend in the struggles for small business, Jo foundered Tradie WAGS to help educate and empower the partners of Tradies in running their family business. Connect with Jo at her website or on Instagram @tradiwagjo or Twitter @tradiewag.

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