Many people dream of being their own boss. It’s a prospect that is both exciting and daunting in equal amounts, but it still remains enticing. Most business owners and entrepreneurs decide to go it alone because they have a passion for whatever their particular field of work is, whether that be dog grooming, carpentry, or real estate.
You’d struggle to find one that started a business because they dreamed about processing invoices, reconciling bank statements, and filing accounts. Often, these tasks get overlooked because they’re boring, difficult, and a little scary. Yet, this is one of the most important jobs of an entrepreneur, here’s why.
Your Business Runs on Numbers
No matter whether you sell cars, run a hotel, or operate a website, your business, first and foremost, is there to make a profit. You may not like that fact or you might say in your marketing that “customer satisfaction is your number one priority”, but in reality, without a profitable enterprise, you’d have no customers to satisfy.
It isn’t just business that this is important either. Just about everything, in one way or another, is dictated by numbers or mathematical systems. A good way to understand this is by looking at the game of roulette. On the surface, it’s a fun game that required you to predict which of the spinning wheel’s colored pockets the ball will land in, but when you delve deeper, you can see that there are rigid mathematical systems that govern it. The includes the probabilities involved in each of the outcomes and the percentage of house-edge this translates to.
Your business is inherently the same. The product or service you sell is the fun colorful wheel while your profits are the mathematical systems that keep it running.
Even if you’re a “non-profit”, you still need a surplus of money to pay your bills so you can continue to operate.
It’s the Law
At least once a year (or more in some countries), your government’s tax authority will come metaphorically knocking at your door, asking to see your accounts so they know how much tax to ask you to pay.
It is your legal duty to provide them with accurate numbers and pay your taxes on time, no matter how much you don’t want to do it.
Therefore, you have no choice but to get on top of your books.
You Need Numbers to Apply for Credit
Whether you’re looking for a loan to expand your business, trying to attract an investor, or simply trying to get a mortgage for your own home, you will need to provide the prospective lender or investor with details of your operations and how much you make. They will then factor that into their decision-making.
If you don’t have any clue about your business’ vital numbers, then you will have no chance of securing any sort of financing. Additionally, if you don’t have a good grasp of how much revenue, profit, assets, and liabilities your business has, you may actually be selling yourself short in your representations of your financial position.
Better Knowledge Leads to Better Decision Making
As an entrepreneur or business owner, one of your most important tasks is to make decisions. The success of your enterprise rests on the path you steer it down and as much as you may think you can rely on your “gut” and your intuition, informed decisions are by far the best.
For example, if you’re deciding on a promotion to increase your sales, you might be wondering which ones you should try and push. Advertising your entire range will send a confusing message, so you might choose to run a “loss leader” on one product to get people in the door and then take that opportunity to upsell them more profitable items.
However, if you don’t know what products make you the most profit, you won’t know which ones should be the loss leader and which should be your profitable upsell.
Additionally, if you don’t have an accurate cash flow forecast, you can’t make decisions on whether to expand to a new store since you don’t know if you’ll have the liquidity to fund the move.
