I love numbers. For nerds like me, numbers are really cool, fun thing to hang around. I could sit in a room all day and crunch numbers, well, until I get bored and have to go talk to people.

But I understand that not everyone loves numbers. Some people don’t “see” numbers.

One of my clients from California called me up in 2012. He had moved to Oregon and needed some help with his accounting system. He told me his controller did not “see” numbers. I had no clue what he was talking about. I flew up there and spent the next 8 months fixing and refining his accounting system. The poor guy really did not understand numbers. They weren’t his “thing”. That’s okay, except when you are trying to run an accounting department.

All business owners need to learn to read numbers. You don’t have a choice. Numbers are the language of business, numbers when done right can be your best friend. Okay, things should never replace people in you life but numbers are the best tool you will ever have.

Why? Numbers tell stories. Not fake stories, not “if only” stories, not “some day” stories. Numbers tell you where you’ve been. Numbers tell where you are right now. If done correctly, projections can estimate where you are going.

Numbers won’t be your best friend but they are your best tool.

So, where have you been?

Numbers will tell you exactly how you have performed in the past. Just like an athlete reviewing the game tape, a business owner needs to know what happened. Accounting does not record what will happen in the future, they record things that have already happened. This is why purchase orders don’t mean that much to accountants. They may be legally binding depending upon your state but accounting records transaction that have already taken place.

So, where have you been? Your profit & loss tells you how the company performed for a certain time period but your balance sheet shows the story over time. The balance sheet is an accumulation of all your business decisions for better or worse.

Job costing has to be one of the most important numbers you need to know. I sat through a meeting last month and listened to a marketing person from a small company ask a marketing guru how to market her product. She had no clue how much the product cost to make, she had no clue how they were going to package in (what size/quantity), she basically had no numbers at all. Finally. The marketing guru called her on the carpet and told her point blank – it’s your job to know these numbers.

How can you price a product if you don’t know how much it cost to make? How can you price a product if you don’t know what your competitors are charging? You can’t. At least, you can’t do it well. You need to know your numbers.

These are numbers you need to calculate before you start selling. Yes, the final numbers change and then they will change as you go along. Prices go up but they can also come down. You can also negotiate payment terms with your vendors. Okay, that’s another topic we won’t go into right now. But know your numbers.

Numbers tell you your exact position right now.

Where do you stand right now? The first thing I do when coaching someone financial or in business is determine exactly where you are right now. No GPS system in the world can get you to your destination if you don’t know your starting point. You can’t reach a goal if you don’t know your starting point.

Your numbers tell the story. You may know how much you have in your business checking account but do you know what your debt level is? Do you know what your interest rates are? You need to know the exact cost of your product including customs & shipping. Do you know how much each component of making the product costs?

Your profit right now is based on decisions made in the past.

Your profit in the future will be based on your decisions made right now along with outside influences. No one can predict all the crazy possibilities that could occur in your industry and the economy in general but knowing where you stand right now and making sound decisions based on facts can help protect you and your company. Being a lean, agile company can help you adjust quickly to outside forces. But you can’t do much when you don’t even know where you stand.

Numbers can tell you where you will be in the future.

If done right, projections can help you estimate where you are in the future.

Cash flow projections are especially important for small businesses. I always use excel for this. Please don’t use the cash flow reports in canned software. They just don’t work. I won’t say they are useless but pretty darn close.

Even service-based businesses have costs. There is no such thing as 100% profit margin. Although I received an email from an online marketer claiming there was a way to run a business and sell stuff for 100% profit margin. This guy had no clue what he is talking about. Is he successful? Yes, but he does not know his numbers. But he’s rich enough to hire someone to watch his numbers for him.

Unfortunately, he is out there selling baloney on the internet. If you haven’t noticed there’s a lot of “gurus” out there selling crap on the internet. This guy is known for being a cheerleader. Cheerleaders are great. We all need them. Just don’t let them tell you how to run your business because they usually have no clue.

The reality is, it costs money to run a business. Just know what your numbers are. Know where you stand. Then if you decide to risk, it and stick you neck out, you know where you are and what you need to do.

Go against the numbers?

If your gut says go, then go. If God calls you out and tells you to do something, do it. Step out in faith and the resources will show up. But know your best, worse case and most probable scenarios. Don’t step out in ignorance. Step out equipped with the numbers and have a back up plan to protect you if you need.

I hate math. What do I do?

For those of you that don’t see numbers or don’t like numbers, don’t worry. The good news is you don’t have to be a math whiz to understand your financial reports. You only need to know basic math and everyone can learn that. If you aren’t good at it, you can hire someone to teach you and guide you until you become good enough to get by on your own.

I have a client that has 7 years of college education, speaks 4 languages fluently and is absolutely brilliant at what he does. He hates numbers. Sometimes, when I worked in his office I would walk down the hallway and he would run in the other direction. We now have an understanding. I just give him the bottom line. He doesn’t want to know how I came up with the numbers. I like to explain everything and where it came from. He could care less. He can only handle one number at a time.

But understand, this client can afford to have me manage his money for him. Most of you should not do that. Learn how to read what the numbers are telling you. Don’t accept the numbers without an explanation. What are the assumptions behind the numbers? If someone is giving you cash flow projections for the next 4 months, they made assumptions on what would probably happen. Question the assumptions.

If a financial planner tells you this is what your life looks like in 10 years – question the assumptions. If your gut tells you the numbers don’t sound right – ask to see the method or calculations they used to get the numbers. Get the details. If you are a small company and can only afford a bookkeeper, get a higher-level person (controller/CFO/CPA) to help you.

Most importantly, set up your accounting system correctly in the beginning. A system done correctly is worth its weight in gold. I half spent half of my time for the last 20 years cleaning up messes because business owners were trying to save money and did not set up their accounting system properly. It will cost you a lot in time and money to fix a broken system. Do yourself a favor and get a good accounting system from Day 1.

Peace, Love & Prosperity,

Deb