I recently discovered a new way to help lead my company. I wish I had discovered this technique 10 years ago when we started my company, but I thought everything was just intuitive back then. In fact, I probably would have dismissed it as too simple since it involves only basic math I learned in middle school. But, this new technique is helping me see and solve very complex opportunities. It is simply, Managing by the Numbers.
I dismissed accounting (sorry Mr. Pat!) for a long time because I didn’t understand it. How can something based on basic math provide powerful insights? Money comes in, money goes out. What I failed to realize, though, is that while I am on the ground floor spending and receiving money, there is a forest’s worth of activity going on around me. And, I can’t see any trends by spending my time in the forest. By understanding how to use Balance Sheets, Profit and Loss Statements, and Cash Flow Statements, I can zoom out and see the entire forest for the trees in my company. I can use this basic math to understand my company’s trends and opportunities.
In his book, Managing By The Numbers: Understanding and Using Your Company’s Financials, Chuck Kremer, Ron Rizzuto, John Case tell the story of a fictitious office supply company and demonstrate the power of these three statements. The owners purchase the company from previous owners, operate through a couple of years and then start reading their financials. As they learn to use these reports, they recognize trends. They also recognize their greatest opportunities and their greatest weaknesses.
Now that I have a better appreciation for accounting, I am putting this knowledge to work as I lead my company. I have already spotted a few of our largest opportunities and risks. I have also started recognizing how to better motivate my team. I can’t help but wonder what the small business community would look like if each owner had a better understanding of his or her financials. What would our local governments look like if they knew how to use their financial statements? Heck, what would our state and federal governments look like if they also used them? I can’t help but imagine that we would all understand what is profitable and what needs improvement; we would all have money in the bank; we would really plan for the future. Managing By the Numbers is a great way to learn and start using our own financial information. If you own a small business or farm, or if you lead any organization that spends money, pick up a copy of this book now. You, your employees, owners, and constituents will be glad you did. I know I am.