Why It's Important to Know Your Numbers
I'm not sure about you guys, but this past week has been one of the craziest weeks of the year for me and I cannot stress enough the importance of being proactive instead of reactive in your business. I wouldn’t have survived the week otherwise! Let’s talk about why it’s so important to know your numbers, and what exactly I mean by that.
Your Financial Story
Knowing your numbers is knowing the financial story of your business. You guys know the operational side of your business because you're in it every day and you know what's working and what's not working as far as organizational things or human resources. However, if you're not clear about your numbers, and your financial story, it's really hard for you to make changes in your business. So that's what I want to focus on today - I want you to know why it’s so important to know your financial story.
To me, the first step and the easiest step in this process is to sit down, reconcile your bank statements, and categorize your expenses. That way you know what's coming into your business, what type of income is coming into your business, and where it's all going. I've used the analogy time and time again that we all have debit cards and we're all accustomed to swiping that card, but you're not keeping account of where you're swiping those cards and where that money is actually going. You know that as long as you swipe it and it isn’t declined, you're good to go.
Naturally, you just keep on going with your business, and then it comes to tax time and you're at a loss. Maybe you don't do your books, maybe you have someone else do them for you and they report back that you’ve spent an astronomical amount of money in a specific category and you're blown away. Well, you're only blown away because you didn't keep up with it all year! So, I'm here to tell you it's really very simple - keep up with it every single month of the year so you're not surprised and I have a product that will help you do just that.
You can download the Calculated Tax Planner and that will help you get your business finances all categorized and ready to go so you know what your numbers are. It's a product that I actually use in my own accounting, and my firm has used it for years - I promise, it helps tremendously.
Why is Knowing Your Numbers Important?
1 - Finding Mistakes
The number one reason is that if you know your business finances and if you're reconciling those bank statements every single month, then you can find mistakes. What mistakes? I'm talking about bank errors. You would be surprised, I’ve actually seen checks from different accounts clear from another bank account. Really strange, right? But it happens.
Another thing you can catch right off the bat are those “free downloads” or you have to do a trial subscription. Let’s say you downloaded Adobe because you wanted to try it out. You did a 14-day trial and had to put in your debit or credit card information for you to download the program. You use it and then forget or you don't think anything about it. This goes on for months and months and then you happen to look at your online account one day and you notice there have been three months of $14.99 charges. That might not be a large sum of money, I get it, but those things can add up quickly. Whereas if you're doing your books on a regular basis - you’ll catch it.
The other thing you can catch is going to be fraudulent charges. Unfortunately, there are a lot of hackers out there that love to steal your credit and debit information. By looking at your bank statements, looking at those online accounts on a regular basis, and reconciling those accounts, you’re going to notice if you’ve been hacked.
2 - Tax Season
The second reason, knowing your numbers and keeping up with your books on a regular basis just makes life easier. How good would it feel for everything to be ready for your business at the end of the year? It doesn’t need to be the day taxes are due at 11 pm and you stressing because you have an hour to get it done. You’re not asking for that extension from your tax preparer. You don’t need to be overwhelmed because you haven't worked on your books. If you keep up with it, they’re always ready so you just turn it over to your tax preparer and be done with it! Being ready for your taxes is a big reason.
3 - Audits
Number three, avoiding painful audits. Notice that I didn't just say avoiding, because let's face it, all of us are subject to audit. Some audits are just on a random basis and you just happen to pull the lucky number.
The key is you're avoiding painful audits. If you're audited and you had all of your books ready, everything's done - it's simple. You just turn it over to the auditor and there you go. Everything balances, everything matches - ready to roll. It's not a painful audit, and you don't have to worry going into it that there's something going to go unaccounted for.
4 - Refocus Your Efforts
The next reason, you can refocus your efforts. This one is very important because if you're steadily wondering what your cost of goods are, how much are you actually spending on payroll versus your revenue, etc., you're just spinning your wheels. You're not going to grow your business if you can't get a grip on these numbers. Your financial story is not going to be sustained unless you know your numbers.
If you know your numbers, then you can refocus your efforts on the areas that need to be focused on. For example, I met with a client a couple of weeks ago. She is a restaurant owner and had been doing things on her own. So it comes tax time, and when we're looking at her numbers. She never took into account what her percentages were on her cost of goods. So we took the numbers we evaluated and compared them against the averages of her type of business. She was way overspending on food costs, and after talking with the client for a while we determined what those issues were and it was something that she knew in the back of her head that probably wasn't going to be doing any good - but she didn't know how to change it. After she saw it in black and white, we were able to make a plan so that she could start saving in her business. She could refocus her effort on where she thought the problem was, and actually focus on what we knew the problem was because we knew it in black and white. We knew where her cost should be and where she was so we were able to fix the problem.
5 - Make More Money
Lastly, the biggest reason to know your numbers and to know your business financial story, is to make more money! Going back to the story of the restaurant owner - now she's able to make more money, she's able to be more profitable because she knows where her money is going. She knows that there's enough money coming in, but it was going out the back end and she never realized it. So, knowing your numbers will help you to be more profitable.
You are the writer of your financial story. If you’re ready to get proactive before your books start piling up, book a complimentary call with me today, or get empowered to DIY with the Calculated Tax Planner.
