Sunday, March 12, 2017

Know Your Numbers

I enjoy watching Billion Dollar Buyer.  For those of you who haven’t watched the show, billionaire Tilman Fertitta looks for quality small businesses to possibly supply his many enterprises.  Another great business show on the same network is The Profit.

In the intro of Billion Dollar Buyer, Tilman confidently says, “Ask me anything about my business…....I’ll know it all”.  Although this seems like hubris, it isn’t.  He’s pointing to the importance of knowing your customers and knowing your numbers.  Throughout the show, his focused attention to his customers is evident.  And he knows his numbers.  Other factors come into play in these episodes as well.   Topics like understanding market position, growth potential, vendor relations, cash flow, and cost of sales. 

All the factors of running a successful business can come together perfectly, but if you don’t know your numbers, the rest can quickly evaporate.  Here are a few important points:

·         Learn the relationship between a Balance Sheet and a Profit and Loss Statement.  Understand that a Balance Sheet is a snap-shot of your net worth while a P & L measures contribution to net worth over a specified time.  A Balance Sheet is expressed as Assets and Liabilities while a P & L is expressed as Revenue and Expenses.
·         Cash flow is basically the measure of funds circulating through your checking account(s).  Cash Flow is what allows you to operate.  A full understanding of movement of cash is essential.
·         Cash flow has a huge relationship to Receivables.  I sometimes call it “chasing your money”.  One way to reduce receivables is to offer debit/credit card payment terms, and make it easy for customers to pay.
·         In a goods related business, paying your vendors on time is essential to keeping up with the flow of goods available for sale.    
·         Use accounting software.  Set it up yourself or be closely involved with deploying it.  Accounting software like QuickBooks© makes it much easier to understand your numbers.  If information is entered in a timely manner, you can get timely financial information.

Shows like Billion Dollar Buyer and The Profit provide great advice for small businesses.  Tilman Fetitta and Marcus Lemonis would certainly agree on this; having a true understanding of your numbers is essential!  

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