Acting In Business - On The Financial Data!

In many instances business owners have financial data available from their business, but they find themselves unable to act on this data. How can business owners use very basic financial data as a tool to make better decisions or diagnose business problems?

Deciding what to do with respect to a financial challenge and then to actually go about doing that can be a problem for the business owner.  Numbers are in essence measurements of our businesses - sometimes they are very basic, other times somewhat complex.  Generally the numbers tell the truth, but solid business judgment around those numbers and their meaning comes from experience as seasoned business owners well know.

When a business person has financial data that suggests a change he or she may not necessarily believe that any changes made in the business will prove the desired result.  

Let’s look at a simple example. Let us say that the financial numbers reflect a rent expense ratio of 5%. That is to say that the 5% of the total costs of the company are reflected in rent. Let us also assume that for the last several years this number was only 3.5%.  The business owner wants to know what the problem is. Experience business people already know the answer, which is ‘it depends ‘. That is because maybe sales have increased dramatically,   or newer and better locations have been maintained by the firm.  Maybe in general the local rental / leasing economy are very bullish.

What we are of course saying is that financial information in effect, that is good financial information, allows us to ask questions. There are probably ten questions that any seasoned business owner can ask relative to our example of rental expense increasing on a year over year basis.

So we are saying that the numbers force us to think – and posing simple questions around the numbers will often lead us to continued positive progress in our businesses.

Business owners should also have a healthy skepticism about the numbers when that makes sense. For example:

Are the numbers seasonal?
Is what we paid for items still the current value?
Is one part of our business being analyzed, or all of our business?
Are the actual numbers really accurate – i.e. incompetence, etc?
Financial stat’s measure the past, what about the future;

So what is our final bottom line? It is as follows:  The financial data we get from our business can help us in revealing business problems; they can also alert us to financial problems earlier, rather than a later. At the end of the day the numbers are not an absolute substitute for common business sense, and the numbers will not, on their own, fix a business owners problem. But if management is willing to use the numbers as a tool. , they can be a very valuable took in the business owners toolkit!