33% of small businesses fail within the first two years. More than 50% fail within 5 years. One study shows that 96% of businesses fail before their ten-year anniversary.
Sounds grim, right? As a small business owner, you don’t want to be part of those statistics. But do you really know how your business is doing? If you’re ignoring the numbers in your business, then chances are, you don’t.
How does a business make money? It’s not rocket science – you make money by selling something (your product or service) to someone (your customers) for more than it costs you to make it, over and over again. So if you don’t have enough customers, or your business isn’t profitable or you aren’t investing your profits wisely — you’re going nowhere fast.
The only way to know if you’ve got a problem with sales, profits, or investing in your business is to look at the data. Yep, data = numbers (isn’t that convenient?), and that’s where your financial statements and reports come in..
I’m sure that you didn’t start your business to look at financial statements and reports. But according to a recent INC article by Bill Carmody, most businesses fail because their owners “are (or start out as) financially illiterate.”
Avoiding the numbers in your business is like driving your car at night while wearing sunglasses. You may look cool, but you’ll miss traffic signals, warning signs, and you’ll probably take some seriously wrong turns. You might even crash and burn.
April isn’t just “Tax month” — it’s also financial literacy month — so this week we want to start a real conversation about your #SmallBizMoney. Because although Mo Money may mean Mo Problems, when you’re out of money in your business, it’s game over.
If you’ve got the guts to start your own business, I know that you can learn what you need to know about your business finances. But you’ve got to quit pretending that you can run your business without looking at the numbers.
So what are some steps you can take right now to organize your financials?
1. Recognize that “Money for Nothing” is just a song! You have to earn the money that comes into your business by doing three things:
- Wisely investing your time and money into activities that
- Attract more customers who
- Buy a profitable product or service, thereby generating more money for you to invest and starting the cycle all over again.
If you don’t see how every single thing you’re doing fits into one of these steps, stop right now! This applies to things that take up your time, as well as things you do that cost money.
Reviewing every client order, handling every phone call, or insisting on attending every meeting is NOT your job as the owner. Bringing money into the business by making good investment decisions, attracting customers and selling profitable products/services IS.
Looking at your business numbers will help you figure out where you’ve invested well, and where you need to change directions. But only if you actually look at the numbers and understand what they’re telling you!
2. Take responsibility for understanding your business by the numbers and find your groove by getting educated and then creating an approach that works for you.
- Be honest with yourself, stop avoiding & making excuses – not possible if you continue to ignore the numbers, or pawn it off on your accountant.
- Know what YOUR goals are, make sure they are SMART and then measure your performance against those goals. Not everyone wants to (or should) be the next Mark Zuckerberg.
- Recognize how your personal feelings about money may be getting in your way. The numbers don’t say anything about YOU as a person, they’re just giving you data about your business.
A few ways to make it less painful:
- Start small – you don’t have to know everything to make better decisions. Choose 3 numbers to review & understand for the next 3 months, then expand.
- Find a numbers person who speaks your language and ask them all your questions. The right person won’t judge or ridicule you for wanting to educate yourself.
- Keep a business journal – track your thoughts + numbers + whatever else you want regularly.
- Change your frame of reference when reviewing your financial performance. Instead of looking at $10k of sales, track 100 products sold or 10 new customers to help make it more real for you and your team.
3. Stop spending and start investing! Have a process for making good decisions about investing the money you already have. This will build your confidence while helping your business grow.
- Know how much the thing you’re investing in will cost you (in money AND in time) and then determine what you’ll really get out of it. How many new customers will it bring in, or how much will it reduce your costs?
- To make it easy, you can ask yourself the questions on this checklist before you make a decision to invest
- Before you buy that online course you’re sure will bring you tons of new customers, or you go to that conference where you’re going to move to the “next level” in your business, weigh out the concrete costs and the concrete benefits. If the benefits aren’t bigger, don’t do it!
Quick test: Ask yourself what you’d do if you suddenly found $10,000 for your business. Would you know where to invest it in your business for maximum effect?
Knowing the numbers in your business means that you’ll stop driving blind, and get on the right track for your version of success. So that the next time a $10,000 windfall comes your way, you’ll know exactly where it will help your business the most!
