A great many entrepreneurs come loaded with craft or connections, but too many shy away from getting their hands bloody in the numbers. The “I’ll just hire an accountant” attitude may be good to ensure you’re meeting your payroll obligations, but not for forecasting when you should hire. Same thing with taxes – an accountant may be able to dot the “i”s and cross the “t”s, but they’re not in a position to determine how you leverage the cash events that tax credits (or similar instruments) can offer. Converting numbers into vision is the stuff of leadership.
Having a firm grasp on your financials allow you to act based on projections without (over)reaction. Hiring, for instance. The numbers will tell you that you need to create a position in 4 months that your current numbers don’t necessarily support. You have two options: first, wait until you feel you can afford it, then scramble to hire the “least worst” candidate. Or second, start the hiring/interview process early to secure the best candidate possible can be found. It’s fairly academic to see which employee will have a more predictable and valuable impact on your business.
As a business owner, you’re converting your vision into reality – this has intrinsic cost requirements. Simply “willing” things to work out leads to long nights, morale issues, and strain in client relations. Knowing the financial mechanisms of success is the minimum viable starting part. Burn rates are important, but embracing run rates and business triggers (ex: actions tied to cash events) imbues consistency in your success.
The trick to approaching numbers is not to obsess. Some entrepreneurs lose sleep at night, wondering how they’re going to make that $100k per month burn rate. Realistically, in a similar way they made their $50k burn, or the first time they crested $20k. It’s just a number that was planned for, that the business is fundamentally positioned to succeed at… that is, if you’ve done your forecasts, accurately tied them to the business model, and are seeing the work through. If you’re haemorrhaging cash, knowing the nuanced financial realities will help identify exactly where things are failing and what actions are required to correct the circumstance. That said, things likely won’t fall off the rails in the first place if you have strong financial discipline, a reconciled/coherent business model, and your consistent engagement.
When you partake in pure numbers, you’ll be able to see otherwise hidden opportunities. You’ll know when it’s appropriate to mitigate liabilities or critically, when to take out new ones that grow your business. Any business owner should be able to collaborate on the financial details and projections with their controller or CPA, knowing the implications of every line item. Financials allow entrepreneurs to plan and act instead of hope and react. Yield them at your peril.
First Published in TechVibes, Photo: morgeFile