20 Years in Business and Still Asking Questions About the Numbers

Adventure Graphics shared a post this week after recently joining CASS, and there was one particular comment in it that I thought was worth talking about.

They've been in business for 20 years, but openly said that understanding their numbers and financial planning has never really been their forte.

I suspect there are plenty of business owners who would say exactly the same thing.

Running a successful business doesn't automatically mean that you understand everything that's going on in the numbers. In fact, the longer you're in business and the bigger it becomes, the more difficult that can get.

There are more people, more costs, more customers, more commitments and usually more decisions to make.

The accounts might tell you that you're profitable, but that doesn't necessarily tell you whether you've got enough cash to recruit someone, invest in equipment or take on a new opportunity.

That's where I think there's quite a big difference between having accounts and actually understanding your numbers.

What are the numbers actually telling you?

Most business owners know roughly how things are going.

You know whether you're busy. You know if customers are buying. You probably have a reasonable idea of what's in the bank and you'll certainly know when cash starts getting a bit tight.

But that's different from having the information to understand why something is happening and what might happen next.

You might be busier than you've ever been but making less money.

Sales might have increased but your margins have fallen.

The P&L might show a healthy profit while the bank balance tells a completely different story.

Or you might be thinking about employing someone without really knowing what that additional £30,000, £40,000 or £50,000 annual commitment does to the rest of the business.

These are the things I think business owners should be able to see and understand.

Not because they need to become accountants, but because they're the ones making the decisions.

It doesn't need to be complicated

One of the problems with management information is that we can sometimes make it far more complicated than it needs to be.

Giving somebody a 20-page management accounts pack doesn't automatically mean they're better informed.

I'd rather a business owner properly understood five important numbers than received 50 KPIs every month that meant very little to them.

What those five numbers are will depend on the business.

For one company it might be gross margin, cash, debtor days, monthly overhead and cash runway. For another business there will be completely different measures that matter.

The important bit is understanding which numbers actually drive your business and then using them.

The comment that stood out to me

When Penny Kay shared the original Adventure Graphics post, she said something else that I thought was probably more important than all the nice things they said about us.

She said that in a short space of time they'd already started addressing some of the things that had been keeping them awake at night.

For me, that's what good financial information should help to do.

It isn't going to remove all the worries that come with running a business. I run a business myself, so I know that would be a ridiculous claim to make.

But it should mean you're making fewer decisions in the dark.

If cash is going to become tight in four months' time, I'd rather know now.

If margins are slipping, I'd rather understand why before another six months passes.

If we're considering recruiting somebody, I want to know what that does to cash and profitability before we offer them the job.

And if we're growing, I want to know whether that growth is actually making the business stronger.

That's what the numbers are there for.

Twenty years in business and still asking questions

I actually think Adventure Graphics being 20 years old makes their comment more relevant, not less.

There can be a feeling that after you've run a business for a certain number of years you should somehow know all of this.

You won't.

I'm an accountant and I've run CASS for nearly ten years. There are still plenty of areas of running a business where I need advice from people who know more about something than I do.

That's normal.

The important thing is recognising the areas where better information or the right support would help you make better decisions.

So perhaps there's a simple question worth asking yourself.

If you had to make a significant decision about your business tomorrow, do you have the financial information in front of you to make that decision with confidence?

If you do, great.

If you don't, perhaps that's where the conversation about your accounts needs to start.

Because producing the numbers is only part of the job. Understanding what they're telling you, and what you do next, is where they really become useful.