4 Surprising Benefits of Knowing your Numbers
Black woman smiles with folded arms and gazes to the left. Chairs, plants and books in the background.
Hands down, one of my favorite topics to discuss with women business owners is all about creating and using meaningful money because I know from years of experience that knowing your numbers can transform your entire business — and your life.
Here I share just a few stories of how clear insights into their numbers have helped our clients in the past few weeks. But first let’s define what we’re talking about…
You may be thinking... “Okay, so, what the heck is meaningful money, and how do I know if I have it?”
In case you’re new to my little corner of the internet, here’s a quick and dirty intro to what I mean when I say “meaningful money.”
You know that your small business finances are built on meaningful money when your numbers are:
Accurate - They contain real information based on solid facts.
Up to date - If your books are behind, then your financial reports can’t give you a clear picture of where you are today.
Accessible - Your numbers are easy to find AND are presented in language that makes sense to YOU.
Actionable - They are organized in the way you actually think about your business so that they give you the information you need at the moment you need it.
Connected - to your values and a vision for your business that excites you.
You get these kinds of numbers by:
Having a clear picture of the future for your business and the steps you will take to get there.
Asking questions - The more you know about your money, the better! The goal is to understand your small business finances, so keep asking until things make sense. There are NO stupid questions.
Setting clear boundaries in your business - Especially having guardrails around managing cash and setting benchmarks for your most important numbers.
Paying attention - Make a regular habit of reviewing your financial reports and daily and weekly metrics. Even if you have someone helping you with your small business finances, you need to understand what is going on with your money and what your financial reports are saying.
Go deeper into meaningful money and clear financial reports.
Why Knowing your Numbers Really Matters
If you think getting your numbers right is important just for filing taxes, you are missing out. Clean books and filing taxes on time are the lowest thresholds for having and using solid financial information.
There are dozens of ways that knowing your numbers can help you build a stronger business and increase the social impact of your work.
The number 1 reason, of course, is using solid financial understanding to build a more profitable business. But there is plenty of power beyond growing revenue and boosting profit.
Here are 4 overlooked results we’ve seen in our work as Virtual CFOs to hundreds of companies.
#1: Less Business Owner Stress: More Resilience
When you have a handle on what money means in your business and where you are financially, you will experience less anxiety when the unexpected happens.
It’s not a matter of if something will happen. It’s just a matter of when for all of us. BUT when you have a handle on your small business finances and know what’s going on with your money, you can recover faster and be more resilient.
One of our clients called with the bad news that a major client is not renewing. Instead of letting gloom and doom fester, we took a two-pronged approach:
Stop the bleed - cut costs where we could asap to make sure the business doesn’t spend more than it takes in when this revenue stops.
Pivot to sales – we brainstormed a few new sales opportunities, identified a few reasonably close prospects, and the owner got a proposal out the door the next day.
Even if she doesn’t close this sale, she knows she has the cash in the bank to pay herself and keep going. And in terms of psychology and human behavior, she’s already moved from anger/disappointment into optimism about the future. Score!
When you understand your money, you don’t just sit around waiting for the bad stuff to go down. You actively take steps to prepare yourself and your business proactively.
#2: Confident Decision Making
When you understand your money, you’re going to make better decisions, AND you’re going to feel better making them.
Rather than losing sleep as you second-guess your choices as a business owner, you dream away – knowing your choices were well-informed and based on concrete facts about your business needs and what it is capable of.
Last week one of our clients got fed up with dealing with one of their most difficult customers and wanted to know exactly how much it would hurt to “fire” that customer. Two days later we had looked at the likely outcomes and could tell her that while she would have some short term pain (in the form of 2 months of low profits) we felt confident that by month three the company would be back on track.
Now this owner is prepared to negotiate for what she needs from her customer and get it; or walk away.
With meaningful money, you get the gift of operating from a place of clarity rather than from a place of confusion or fear!
#3: Pay yourself what your need and deserve
I can’t tell you how many entrepreneurs I’ve encountered who, from the outside, seem to have a thriving, profitable business but aren’t paying themselves the value of their work.
Unfortunately, many business owners leave their personal lives out of the financial equation. They’re so focused on the business’s success that they never stop to consider how and when they should see the benefits in their own lives.
The thing is, we’re not just business owners; we’re people with families, retirement goals, and responsibilities.
You can’t separate yourself & your future from your business.
If you’re not...
Looking at where your family income needs to be
Considering your relationship to your business in 5–10 years
PAYING YOURSELF
... Say hello to burnout - its coming for you!
However, when you have a clear handle on your small business finances, you can factor yourself into the equation and ensure that you’re getting paid, too.
Here’s how. One of my clients is working on pricing for 2023. She was thinking about all of the direct costs of running the service, including supplies, labor, and transportation, and was basing her price on that.
I added the cash she needs to raise her own pay to the new pricing model, which really put a twist on the conversation. 🤯
Now she knows exactly how many new customers she needs (at the new price) to bump up her own pay!
#4: Fund your own growth and multiply your results
When you keep a tight eye on your numbers (and your cash), you can build a cash reserve as a part of your small business finances.
My favorite method for doing this is through Profit First — A behavioral system for putting guardrails on how you manage business finances. (about Profit First Myths.)
To be honest, this is the real sleeper benefit. Instead of needing to raise money, get bank loans, or (worse) high-interest cash flow loans … build up a bank account you can draw on to fund your growth!
One of our client companies is using its cash reserve to fund an e-commerce consultant to build a whole new revenue line. I expect e-commerce to easily double the size of the business in a few years and improve the company’s profitability as it grows. This means the owner will easily earn back the cash invested (and then some!) with the additional profit.
Ready to Get a Handle on Your Small Business Finances & Start Creating Meaningful Money?
Twice each month, you’ll receive a newsletter with solid tips and tools for growth-oriented business owners who use numbers and values to drive decisions.
You’ll receive resources like:
10 tips you need to improve cyber-security for your business
How to choose the right bank, investor, or partner for your business — without sacrificing your social impact/social justice priorities
How and why to produce a Social Impact report along with your financials
“If you care about both profit and social impact, this is the newsletter you need.”