Why Knowing Your Numbers in Business is SO Important
If you are a business owner, you probably have a lot of things on your mind. You have to manage your products or services, your marketing, your sales, your customers, your employees, and more. But do you also pay attention to your numbers? By numbers, we mean the financial data that tells you how your business is performing. Things like revenue, expenses, profit, cash flow, margins, and so on.
Knowing your numbers is not just a matter of keeping track of your income and expenses. It is a crucial skill that can help you make better decisions, improve your efficiency, identify opportunities and risks, and grow your business. Here are some of the benefits of knowing your numbers in business and some examples of how they can help you:
- You can set realistic and measurable goals. Knowing your numbers helps you to define what success looks like for your business and how to achieve it. You can set specific and attainable targets for your revenue, profit, growth, and other key performance indicators (KPIs). You can also track your progress and adjust your strategies accordingly. For example, if you know that your average revenue per customer is $100 and you want to increase it by 10%, you can design a plan to upsell or cross-sell more products or services to your existing customers or attract new customers with higher spending power.
- You can optimise your pricing and profitability. Knowing your numbers helps you to understand how much it costs you to produce or deliver your products or services, and how much value they provide to your customers. You can then price them accordingly to cover your costs and generate a healthy profit margin. You can also analyse which products or services are more profitable than others and focus on them. For example, if you know that your product A has a 50% profit margin and your product B has a 20% profit margin, you can allocate more resources and marketing efforts to promote product A or find ways to reduce the costs or increase the value of product B.
- You can manage your cash flow and budget. Knowing your numbers helps you to forecast how much money you will have coming in and going out of your business in the future. You can then plan your spending and investing accordingly to avoid cash flow problems or missed opportunities. You can also create a realistic budget that aligns with your goals and helps you control your expenses. For example, if you know that your average monthly revenue is $10,000 and your average monthly expenses are $8,000, you can set aside $2,000 for savings or investments or use it to pay off debts or fund new projects.
- You can secure funding or investors. Knowing your numbers helps you to demonstrate the viability and potential of your business to potential lenders or investors. You can show them how much revenue and profit you are generating, how fast you are growing, how efficiently you are operating, and how well you are managing your risks. You can also present them with a clear and compelling business plan that outlines your goals, strategies, and projections. For example, if you know that your annual revenue is $120,000 and your annual profit is $24,000, you can calculate your return on investment (ROI) and show them how much they can expect to earn from investing in your business.
- You can improve your customer satisfaction and retention. Knowing your numbers helps you to understand who your customers are, what they want, how they behave, and how satisfied they are with your products or services. You can then tailor your offerings to their needs and preferences, improve your customer service, increase your customer loyalty, and reduce your churn rate. For example, if you know that 80% of your customers are repeat buyers and 20% are referrals from existing customers, you can create a loyalty program or a referral program to reward them for their support and encourage them to buy more or spread the word about your business.
- Be prepared for what is ahead for your tax obligations. Knowing your numbers helps you to understand what money you should be putting aside for the ATO. Having up to date and clean records also gives your Tax Accountant a chance to advise you on tax planning before 30 June. For example, if you have a large profit and surplus cash, you might like to explore what assets you can purchase for the business and the tax benefits of doing so.
As you can see, knowing your numbers in business is not only important but essential for success. However, many business owners struggle with this skill because they lack the time, knowledge, or tools to collect and analyse their financial data. That's why we recommend using a professional. We are more than happy to connect with you to explain how we can assist you with the above.