October 2, 2014
Knowing the ins and outs of your business requires some financial knowledge. Learn the fundamentals of finance and accounting and keep your small business thriving.
Why do we accept a 50 percent small business failure rate as inevitable? What if it were possible to improve the odds of survival and change the future of millions of dreamers and their households? It is. I’ve already done it with hundreds of small businesses that were on the ropes and are now flourishing.
Understand the same way your car has a dashboard, so does your business. It is comprised of your Net Income Statement, your Cash Flow Statement, and your Balance Sheet; the GPS for running a business of any size. Think of the financial dashboard like your spouse; it’s always talking to you, but are you paying attention to what it’s really saying? Companies, like marriages, rarely collapse without warning. There are always signs.
Let’s distill a few zillion published pages of small business management drivel into three key questions your financial dashboard answers:
The three “gauges”or statements are really simple to understand if you take the time to learn how to read them. It’s as easy as reading a thermometer. If ever I got on Shark Tank, the first question I would ask is: “What is your gross margin”? If the one pitching has no clue, I’d reject their business proposition, no matter how creative. The odds are strong they’ll become a statistic in a few short years.
The big message is, we can’t afford for any small business to close its doors. They’ve already absorbed all the start-up risks during those tender early years of operation. And according to Gallup, new business start-ups are down 30 percent from where they were twenty years ago. There aren’t enough new start-ups to compensate for today’s closure rates. But we know that every small business that flourishes helps guarantee the financial foundation of our communities.
So if we can save a few thousand of these businesses that have profit and cash flow potential, imagine the long term effect on the economy. My new book, Accounting for the Numberphobic: A Survival Guide for Small Business Owners (AMACOM Books), simplifies the dashboard by capturing the stories of small business owners who are bakers, photographers, and service providers; people I’ve gotten to know personally and respect.
At the end of the day, no one wins awards for sleepless nights, poor health, no cash, and high stress, as Arianna Huffington’s book Thrive proves. Winning at small business is about living off the cash flow of the business. It’s working half as hard and making twice the money no matter what the economy is doing. Yes, it’s possible to do with integrity.
Truth is, every time I hear the term “small” business, I cringe just a little. “Small” implies insignificant. But when taken in the aggregate, small businesses create half the new jobs coming on line. That’s real power and importance.
Small business owners are the best of us; they are very talented, educated people. Yet, the same way we rarely get parenting lessons before giving birth, most small business owners don’t receive formal training before they open a business. They think if they have a dream and they’re good at what they do, that’s enough to build a profitable company with adequate cash flow. It isn’t.
So if you’re a small business owner and you’re struggling (or you know someone who is), you’re not alone. There is hope for you. Learning the basics of reading your Income Statement, Cash Flow Statement, and Balance Sheet might just change your life.
I’m on a mission to teach financial literacy to every dreamer and small business owner who wants to thrive. Please join me on this journey by following the hashtag #knowyournumbers.
For more business insights and strategies, sign up for our free management newsletter.