Your Financials Matter, But Do Not Forget to Run the Business

If you have read much of what we write at UnpackFi, you have probably noticed a theme.

Understand your numbers.

Know your revenue.

Know your expenses.

Understand your margins.

Watch your cash flow.

Know your break even point.

Pay attention to profitability.

We believe all of those things are incredibly important.

But there is another side to that conversation.

You still have to run the business.

A perfect financial report does not bring a customer through the door.

A beautiful spreadsheet does not make a sale.

Calculating your gross margin for the tenth time this month will not create another dollar of revenue.

Your financials should help you run your business.

They should not become the business.

Your Numbers Are a Tool

Think about the dashboard in your car.

It tells you how fast you are going.

How much fuel you have.

Whether your engine is overheating.

Whether something needs attention.

That information is extremely useful.

But imagine driving while staring only at the dashboard.

You would eventually crash.

Running a business is similar.

Your financials are your dashboard.

They tell you what is happening inside the business.

But you still need to look through the windshield.

You need to understand where you are going, what is happening around you, and what you need to do next.

Financials Usually Tell You What Already Happened

This is an important distinction.

Most financial statements are historical.

Your P&L tells you what happened during a period.

Your balance sheet tells you where certain accounts stood at a particular point in time.

Your cash flow information helps explain how money moved through the business.

That information is valuable.

But much of it describes decisions that have already been made.

The sale already happened.

The expense was already incurred.

The employee was already paid.

The customer already left.

Financials help you learn from the past.

Running the business determines what happens next.

Revenue Has to Come From Somewhere

Every business ultimately needs customers.

Someone has to pick up the phone.

Someone has to answer the email.

Someone has to follow up with the lead.

Someone has to build the relationship.

Someone has to make the offer.

Someone has to deliver the product or service.

Someone has to ask for the sale.

It is easy to get caught up working on the business while forgetting about the activities that actually generate revenue.

Especially for a new business, revenue should be one of the owner's biggest priorities.

You can optimize a lot of things later.

Without customers, there may not be much left to optimize.

Do Not Use Analysis as a Substitute for Action

Business owners can fall into a trap that feels productive.

You adjust the forecast.

Then you change the pricing model.

Then you calculate three different margin scenarios.

Then you reorganize the budget.

Then you rebuild the spreadsheet.

Then you research competitors.

Then you revise the business plan.

At the end of the day, you did a lot of work.

But did you talk to a customer?

Did you make an offer?

Did you follow up with a prospect?

Did you improve the product?

Did you solve a customer problem?

Did you create revenue?

Analysis can be valuable.

It can also become a comfortable way to avoid doing the harder things.

Sometimes you already have enough information to make the decision.

You just need to make it.

You Cannot Cut Your Way to Unlimited Growth

Expenses matter.

Every dollar unnecessarily leaving the business deserves attention.

But expense reduction has a limit.

Imagine your business generates $500,000 in revenue and has $450,000 in expenses.

You can look for unnecessary costs.

Maybe you eliminate $10,000 of waste.

Great.

Maybe you find another $10,000.

Eventually there is not much left to cut without hurting the business.

Revenue is different.

In theory, the upside is much larger.

Could you add customers?

Increase average transaction size?

Introduce another service?

Improve customer retention?

Raise prices where appropriate?

Expand into another market?

Increase capacity?

Create recurring revenue?

A healthy business needs expense discipline.

But growth usually requires more than becoming extremely good at cutting costs.

Sometimes the Best Financial Strategy Is More Sales

Imagine your business has a profit problem.

You could immediately start cutting expenses.

Sometimes that is exactly what needs to happen.

But maybe your expenses are already reasonable.

Maybe the real problem is that the company does not generate enough revenue to support the infrastructure it has built.

If your business needs $100,000 of monthly revenue to operate comfortably and you consistently generate $70,000, saving $200 on software subscriptions probably is not going to solve the underlying problem.

The larger question is:

How do we close the $30,000 revenue gap?

That might require sales.

Marketing.

Better pricing.

More capacity.

Improved retention.

New products.

New services.

Or a better offer.

Your financials can identify the problem.

They cannot make the sale for you.

Know Which Numbers Actually Matter

Another mistake is assuming that more financial information is always better.

It is possible to track hundreds of metrics.

That does not mean you should.

A small business owner might reasonably care about a core group of numbers such as:

• Revenue

• Gross profit

• Gross margin

• Operating expenses

• Net profit

• Cash

• Cash flow

• Break even

• Accounts receivable

• Debt

• A few important operating metrics specific to the business

Your business may require additional metrics.

But the goal is not to create the world's largest dashboard.

The goal is to identify the information that helps you make decisions.

If a metric never changes what you do, ask yourself why you are spending time tracking it.

Give Your Financials a Job

Instead of reviewing financials because you feel like you are supposed to, use them to answer questions.

Why did profit decline last month?

Which expenses increased?

Did our price increase improve margins?

Are sales growing faster than payroll?

Can we afford another employee?

How much revenue do we need to break even?

Do we have enough cash to purchase equipment?

Is one location performing better than another?

Which service generates the best margin?

Can the business support another loan payment?

Those are actionable questions.

The financial information has a purpose.

You review it.

You learn something.

Then you make a decision.

Create a Rhythm Instead of Constantly Checking

You probably do not need to stare at your financials every day.

Create a rhythm that makes sense for your business.

Certain numbers might deserve daily attention.

A retailer might watch daily sales.

A restaurant might closely monitor sales and labor.

A business with tight cash might check its bank position frequently.

Other financial information may be more useful weekly, monthly, or quarterly.

The goal is to create enough visibility that you are not surprised by what is happening without constantly interrupting the work required to move the business forward.

Know When to Zoom In

Sometimes your numbers tell you something deserves immediate attention.

Revenue suddenly drops.

Payroll increases dramatically.

Gross margin declines.

Cash begins disappearing.

A major expense appears.

Accounts receivable starts growing.

Debt payments become difficult.

That is when you zoom in.

Investigate.

Ask questions.

Find the cause.

Make a decision.

Then get back to running the business.

Financial analysis should help direct your attention toward problems and opportunities.

It should not permanently consume your attention.

Know When to Zoom Out

There are also times when you need to stop looking at individual transactions and look at the bigger picture.

Maybe one month was terrible.

But the quarter was strong.

Maybe expenses increased.

But they increased because you hired employees to support significant revenue growth.

Maybe cash declined.

But you purchased equipment that should increase capacity for years.

Maybe profit temporarily decreased because you opened another location.

Context matters.

One number rarely tells the entire story.

That is why understanding financials is more useful than simply reacting to them.

Your Customers Do Not Care About Your Spreadsheet

Customers care about their experience.

Did you solve their problem?

Was the product good?

Did you answer the phone?

Did you deliver on time?

Was the service worth the price?

Would they buy from you again?

Would they recommend you?

You can have beautifully organized financial statements and still lose because another company serves the customer better.

Do not become so internally focused that you stop paying attention to the people funding the business.

Spend Time Where You Create the Most Value

An owner's time is limited.

Suppose you spend four hours trying to identify $100 of monthly savings.

Maybe that was worthwhile.

But what else could those four hours have accomplished?

Could you have called ten prospects?

Met with an important customer?

Improved an inefficient process?

Trained an employee?

Created a new partnership?

Built a new service?

Solved a recurring customer complaint?

Financial discipline includes understanding the value of your own time.

Not every dollar deserves hours of analysis.

This Changes as Your Business Grows

Early in a business, the owner may need to do almost everything.

Sell.

Deliver the service.

Pay bills.

Review financials.

Handle customers.

Market the business.

Clean the office.

As the company grows, responsibilities should begin moving to other people and systems.

Bookkeepers can maintain financial records.

Accountants can help with accounting and taxes.

Managers can oversee operations.

Salespeople can generate business.

Technology can automate reporting.

But even as responsibilities change, the owner should maintain enough financial understanding to know what is happening.

Delegating financial work does not mean giving up financial awareness.

You Should Be Able to Leave the Numbers and Take Action

A good financial review should eventually end.

You looked at the numbers.

You identified what changed.

You understand why.

Now what?

Maybe the answer is:

Increase prices.

Call overdue customers.

Reduce an expense.

Hire another employee.

Delay a purchase.

Increase marketing.

Focus on a profitable service.

Follow up with more leads.

Improve customer retention.

Build more cash reserves.

Then go do it.

The value of financial information comes from the decisions it helps you make.

The Best Owners Learn to Balance Both

Ignoring your financials is dangerous.

Living entirely inside them can be limiting.

You need both.

You need enough financial visibility to understand the health of the company.

And enough operational focus to actually build the company.

Understand yesterday.

Manage today.

Build tomorrow.

Your financials should help you determine where your attention is needed.

Then your job is to put that attention to work.

The Bigger Lesson

Knowing your numbers does not mean spending every day staring at them.

It means being able to use financial information to understand your business, identify problems, recognize opportunities, and make better decisions.

Then you get back to work.

Talk to customers.

Make sales.

Improve the product.

Develop your employees.

Build relationships.

Solve problems.

Create value.

Generate revenue.

Your numbers tell you how the business is performing.

Your actions determine what those numbers look like next month.

Unpack Your Business Numbers

UnpackFi is designed to help business owners understand revenue, expenses, margins, profitability, cash flow, trends, and other financial information without requiring them to spend their entire day analyzing reports.

The goal is not to turn every business owner into an accountant. It is to make the important numbers easier to understand so you can identify what needs your attention, make a decision, and get back to running your business.

Try the free UnpackFi demo at UnpackFi.com and see your business numbers in a more visual, practical way.