Jump to Main Content
USA flagAn Official Website of the United States Government
Industry Word

Blogs.Industry Word

Register

You Have to Know Your Numbers

Comment Count:
6

Comments welcome on this page. See Rules of Conduct.

You Have to Know Your Numbers

By Tim Berry, Guest Blogger
Published: December 19, 2012

The other day I had coffee with a former student, now in her late 20s, whose first taste of startups and entrepreneurship was in a class I used to teach at the University of Oregon. The class included—of course—a hard look at cash flow and business numbers. But she told me she had no idea how important the numbers were until she actually started her own business.

“Back then, in class, it seemed like theory to me,” she said. “Like the business numbers were something that the bankers and accountants worried about, while the rest of us were out selling.”

“You can bet that changed,” she added. (And for the record, quotes are paraphrased from memory.)

Rose (not her real name) explained how getting her own business seemed to be swallowing her life. She was always worried, always wondering, playing over in her mind the next month what would she have to pay, where would the money come from. There were always questions about if and when she should add people as employees, offer more services and so forth.

Instead of drifting slowly off to sleep, she’d play over the worries in her mind. And instead of dealing peacefully with the rest of her life, she’d fill her spare moments with work—and work worries.

And for her, at least, she was much better with all this after really learning to know her numbers. In her case (I’m proud to say), she had some residual idea of business numbers still lingering from the classroom experience. So she knew where to start looking. She dug up some old explanations of cash flow, and dug into her online bookkeeping, and began to pull apart her last year or so of sales, costs of sales, running costs, fixed costs and cash flow.

She spent some time digging into the details of her business-to-business sales that required delivering an invoice and waiting to get paid. She took the extra effort to figure out the gross margin (sales less direct costs) for each of her three lines of service sales. And she looked at the difference between the clients who paid on time, or in some cases early (prepayments), compared to clients who paid late. And she looked at some supplies she was buying at a lower rate in bulk, but the real costs of storing the bulk.

“It’s been a real positive change,” she announced, proudly. “Now I have a pretty good idea, day by day, of where I stand with cash, receivables and payables.”

Not that she no longer worries. “At least I know now when I have something to worry about -- and here’s the good news -- when I don’t. So it’s way easier now to turn the worry off when things are okay. And when they aren’t okay, I know that early now, so I know when and why to worry and what’s the problem when I have one.”

And that’s a lesson I’d like to share in this space. I learned that myself, just like Rose did. My first degree was literature, my second Journalism, and although I did get the MBA later, I’m by nature a words and concepts person. But if you’re going to run a business, and you also want a life, then you should know your core business numbers: sales, costs, expenses, burn rate, balance sheet and, by far the most important, cash flow. 

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Comments:

recognizing your numbers and being in a position to track your money flow is crucial to operating a business enterprise must be typical sense. I toaltty agree on this opinion
Great article. Accounting for a small business can be more than headache, I know firsthand. However, the headache is more than worth in the long run as it saves on worry and stress in the long-term.
This is a great post, and contains some excellent information. The fact that knowing your numbers and being able to track your cash flow is essential to running a business should be common sense. But it is not, and that is why we need more of these great articles.
Setting up a business is easy but managing the same requires lot of smartness, knowledge and hard work. We learn with the time.
You not only have to know your numbers, you have to control and take control of your whole foundation and business, or else the business will run you. Especially in these economic times it is necessary to do this.
Learning how to manage your business is very important. Learning how to handle the cash flow is essential. If you want anything bad enough, you will learn, like your friend did.

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!