Episode 44: Basics of business numbers

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Welcome to the Business Numbers podcast. I’m your host, Ben McAdam. I’m a profits coach, virtual CFO, and entrepreneur, and I’ve created this podcast to help you grow your business profits and understand your business numbers without judgment and without burying you in a whole bunch of jargon that you don’t need. Just actionable tips and case studies to help you grow your business. For show notes, go to the website businessnumberspodcast.com. 

If you don’t know what you don’t know about business numbers, here’s the basic framework. I’ve broken it up into four stages.

Number one data entry. Number two reports. Number three analysis and number four feedback. 

Let’s start with data entry. Transactions, payments, and other numbers are entered into a paper or hopefully rather a software system by a bookkeeper, accountant, assistant, partner, friend, family, or you. Someone enters the transactions, the data entry stage -fairly boring, fairly repetitive, needs a little bit of brain power while you’re doing it, but mostly it’s just a time consuming volume kind of task. So that’s stage one, data entry. 

Stage two: reports. Someone in the list I mentioned before: bookkeeper, accountant, assistant, you, partner, friend, family, etc, someone in that list or a virtual CFO will use the numbers from your software system to create reports, summarizing all those transactions into some reports. Now the report could be about the past, about the transactions that have happened. It could be about the future, what might happen based on what’s happened in the past. The report could be about the whole business or a part of the business, maybe a department or a particular product or service line, or a particular location. And the report could cover any time period: might be last month, last quarter, the last twelve months broken into separate months, or the coming six months. Common reports you might hear about are the profit and loss statement, or it’s also called the income statement, depending on whether you’re in the US or elsewhere in the world and what software system you’re used. It might be called the profit and loss, or the P & L, or the income statement. Another common report is the balance sheet. There’s also a cashflow statement or projection, and there’s another type of report called the budget. I’ll talk more about those in separate episodes, If you’d like. Now these reports could be used for government or other compliance, or for stage three: analyzing your business. And this is where the real value comes for you from a bookkeeping system. Most people start out doing the bookkeeping, or the numbers, or the financial numbers or whatever, they start doing that because they have to file tax returns or there’s some other return that the government requires them to lodge. And bookkeeping and the whole finance department processes stuff is boring and not really worth all that much to you. It’s when you start using those numbers to find out what’s going on in your business and to keep an eye on your business, to monitor your business, that’s where the real value will come for you.

So stage three is analysis. There’s been some data entry and that data has been compiled into reports, and then stage three it’s analysis, the most valuable stage. This is where you or your virtual CFO, or whoever will analyze how your business did in the past, or how it might do in the future. I look for errors in the bookkeeping, for example. I look for trends, I look for unusual variations to what you think should have happened and could compare what’s in the reports to external benchmarks. This will give you an idea about how the business is going, what areas might need more attention or what areas are working well and you shouldn’t mess with. But either way, usually the result of the analysis is you think about what to do differently and implement a plan that will get you to your goals faster than you’re currently heading. That’s the real value of the analysis stage. 

But even though that’s valuable, that’s not actually the final stage, the final stage is feedback. And this is something that’s important to remember- that each of these stages really it builds on the earlier work. So the reports are going to be garbage if the data entry wasn’t done correctly, or the reports could more usefully display the information if the data entry is done in a slightly different way. So it’s important, for each of these stages, to give feedback for improvement. So it could be fixing small areas in the data entry to major overhaul of how the data entry and the reports are done. But the whole point is so that it makes the analysis stage more useful or more valuable to you, so that you have a clearer, more detailed picture and can make better strategic decisions about what to do differently in your business and how to get to where you want to go even faster.

So, questions to think about for today is: now you know the basics, and even if you do know the basics, you’ve got a refresher. What stage do you need to improve in your business? Or what stage do you want to know more about? 

‘ll do future episodes talking about what the different reports mean and the things you really need to pay attention to and what they look like, and you can ignore most of the rest of the report if you don’t like reading these things. I’ll also talk about analysis as well, but I will obviously get to the question that you want to hear the answer to better if you reach out and let me know what that is. So there’s a contact form at businessnumberspodcast.com or on my website profitscollective.com or you can connect via Facebook or any of the other options in the show notes for this episode.

Let me know what your specific questions are and I’ll make sure I answer those. 

Thanks for listening to the business numbers podcast. Subscribe in iTunes, Stitcher, or on our website, businessnumberspodcast.com. Also on the website is a free basic concept webinar and a contact form for submitting questions that you’d like me to answer on a future episode.

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