Do you know your numbers?
I'm not talking about your cholesterol or your blood sugar or your blood pressure.
I'm talking about your business's vital signs: your liquidity ratio; your cash-to-debt ratio; and (particularly if you have inventory) your quick ratio. These numbers are the lifeblood of your business - the quick and dirty indicators of your business's overall health, and the way in which you can tell if you are headed into trouble. They mean more than what the cash balance in your business bank account says or what your reportable income was to the IRS.
I often have clients come to me and say that they need marketing help. In the initial conversation, they talk about needing to find more customers and looking for ways to boost sales. In the old days, when I was naive and trusting (and figuring they had a vigilant accountant watching over the financials), I never thought to probe about cash flow. Until...
Until I acquired several clients in rapid succession who told me in that initial interview that they could not draw a salary for themselves, and hadn't done so in months. Then it dawned on me - perhaps this presumed "marketing" problem was actually a "money" problem. I began to change my approach, requiring a look at financials or tax returns, and in every situation, the numbers told the tale.
Know your numbers. Know why they are what they are. Understand what goes into them. This is the first, and most important, step to building and sustaining a successful business.
