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How Do I Make Sense Of My Numbers?

Guest post by: Adam Sonnhalter

Article Overview: We had a client the other day who made a great analogy when it came to understanding the numbers in his business. If you've ever seen the movie The Matrix, early on in the movie one of the characters (Dozer) is looking at a screen with a bunch of numbers and he sees all this activity. The main character (Neo) is looking over Dozer's shoulder and all Neo sees is a bunch of numbers. Are you like Neo or Dozer when looking at your financials? Do you see all the activity that goes on in your business, or are you simply seeing a bunch of numbers?

How Do I Make Sense Of My Numbers?

We had a client the other day who made a great analogy when it came to understanding the numbers in his business. If you've ever seen the movie The Matrix, early on in the movie one of the characters (Dozer) is looking at a screen with a bunch of numbers and he sees all this activity. The main character (Neo) is looking over Dozer's shoulder and all Neo sees is a bunch of numbers.

Are you like Neo or Dozer when looking at your financials? Do you see all the activity that goes on in your business, or are you simply seeing a bunch of numbers?

One of your primary roles as the business owner is to understand your numbers. It's the score card for your business and tells you more than simply being present in the business day in and day out.

You'd be surprised by how many folks are "busy" in their business, but their businesses are not doing well from a profit and cash flow standpoint. It doesn't have to be that way.

It's kind of like The Matrix in a sense where Morpheus gives Neo the option of taking a blue or red pill and he'll be able to see the world differently.

While it's not as simple as taking a pill to understand the numbers in your business, it doesn't have to be very difficult either.

The best way we know how to help a business owner understand their numbers better is by having them "present" those numbers on a regular basis.

Most owners we meet will sit down with their accountant at least once or twice a year to have their accountant review their numbers with them. These meetings typically entail the accountant talking for about 75% of the meeting and the owners simply smiling and nodding their heads as things are explained to them.

Unfortunately, if we ask that same business owner a week later what the accountant told them, chances are they would still have a lot of questions. Understanding your numbers is not a spectator sport. You have to get involved!

Think about a presentation you've given recently. You probably spoke on a topic where you are a relative expert (e.g. your business). Even with that great knowledge, you probably still spent quite a bit of time preparing for that presentation in the days and weeks leading up to the presentation.

When you have to present something, you learn and retain things in an entirely different way vs. simply listening to someone explain things to you.

So if you're struggling to see all the activity in those numbers, we would suggest you find someone to sit down with on a regular basis (e.g. monthly) to present your numbers. When I say your "numbers" I'm referring to your monthly Profit & Loss (aka P&L or Income Statement) and Balance Sheet.

An easy person to start with is your accountant or your business coach. The key is to have someone who is knowledgeable about financial statements and how they work so they can answer questions you might have as you stumble through the P&L and Balance Sheet.

Ultimately, we recommend to all our clients to have them sit down and present their numbers monthly to all their employees. We don't know of a better way to communicate with and get your employees involved in what's going on in your business in both good times and bad.

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Article Tags: balance sheet, financial statements, matrix, profit loss, understanding your numbers



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