We are wrapping up a 3 part series on numbers. Today we’re talking about how you can grow your business more systematically and predictably. Business by the numbers. The quantitative side of numbers. Understand, gain insight on, and make sense of the main numbers in your business. What they are and how to do it.
The Analysis Matrix:
You can analyze anything. In this case, the various parts of your business on these two dimensions: the Q's and the M's. The Qualitative and Quantitative elements of the soft and the hard. Maybe think of them as the right brain and left brain. And then from a big picture (Marco) and a small picture (Micro) perspective.
Macro Numbers List:
This is the list refered to. The first few are the main numbers of an Income Statement or more commonly known as a "P&L" which stands for Profit and Loss Statement. The last two are mainly used for businesses doing healthy 6 figures and more:
- Sales Revenue
- Fixed expenses
- Variable expenses
Micro Numbers List:
Breakdown numbers into these and many more areas. I suggest you even get Micro-Micro and as granular slash specific as "attendees to a webinar".
- Customer service
- Customer experience
- Attendees to a Webinar
We are wrapping up a series. It’s a three part series on numbers. Today we're talking about the numbers. And if that's something that you're wanting to solve in your business, gaining insight on and look at how you can grow your business more systematically and predictably. Systematic and predictable go together here, and this is an episode for you.
In the first series we talked about the big picture: the why.
And in the second part, we talked about the qualitative elements, and mind sets, and roadblocks to moving forward with your business (with respect to numbers).
Today we're talking about the number numbers and if that's something that you're wanting to solve in your business, gain insight on, and look at how you can grow your business more systematically and predictably. Now there's some folks that are in the school of thought that don't like numbers. They're resistant to it, they're more into relationship, and the people, and the meaning, and the impact that gets created. And I agree with you, 100%. And if that's you I want to encourage you to make just a little shift of realizing that the numbers are merely simple ways to represent all that meaning and all that goodness and all that relationship and all that is behind the numbers. That's the piece. So start to embrace numbers more because they will really help your business. I find that folks that need the most help with this are ones that are usually the relationship and the people oriented people. Which I are one! I love people, and I'm a people person and I value relationship highly and I've struggled with understanding numbers.
When I was going to engineering school, and I’ll out myself. I failed calculus. I was in systems engineering at the University of Waterloo and I needed to take the course over. I was struggling with numbers. I remember sitting down with my professor, getting help in office hours, we are working through some stuff and he could see me struggling. He put his pencil down and we where working on some equations and stuff. And he had a strong accent I remember him describing to me saying, “There's no royal road to calculus.” Like there's no royal road, there's no quick fix, there's no shortcut. He said “Tom, you just need to learn this stuff, and then when you do… you've got it! You'll never forget it”.
I want to encourage you if there has been a resistance in you for either math or numbers and kind of this quantitative, like quantifying things, and keeping track of things, and systemizing, and that kind of stuff: embrace it. Because when you learn it (get past the roadblocks in your mind). You got it! It's like riding a bike right. You don't ever forget riding a bike. If you haven't for a number of years you might be a little bit wobbly. But you get it. You get back on that bike. You get riding and you get it. So once you get this stuff, I would encourage you to move forward with it.
If you are someone who embraces numbers and loves it and spreadsheets are a snap and you work in spreadsheets and you're comfortable with Excel. And playing around with a Google Sheet or an Excel spreadsheet it's awesome. I want to give you some insight on how some of this works.
1. Here's the concept I want to share with you. The first one is this: to think in terms of macro and micro. So this concept of macro micro, if you made a Cartesian plane that is like a big plus sign (+). And you had two factors on the side and two coming down on the top. If you're big geeky that way and can think abstractly like that. Macro micro across the top and quantitative, qualitative across the side. What's going on here. Let me just break that down and describe it.
What's going on here from a macro micro standpoint is you got big picture numbers (I want to make this simple). You've got little picture numbers [Micro], smaller numbers. So those big picture numbers [Macro] are stuff that shows up on your financial statements. And if you're not familiar with them which I find most entrepreneurs are not. They don't pull up the financials, often enough. If you're in retail business probably you're looking at numbers all the time. Brick and mortars, depending on what it is you're looking at and less. If you are an online entrepreneur. You're probably never looking at them, and you need to, because you can start to get predictable again systematic and predictable growth forward to predictable revenue, predictable cash. Isn't that nice when you really start to understand your business and you're able to roll up your sleeves and get into it.
I purposefully went through this journey I wanted to get numbers really, really well. And here's what I did. I was building a business, it was very successful. I built it and grew it in five years up to eight figures. It was a $25 million business. I did the bookkeeping myself with my mom. My mom's got an accounting background. I said, Mom, let's just do this. And we'll prepare all the bookkeeping stuff because I want to like crawl inside this business. Just crawl inside it and get super-duper comfortable with spreadsheets. With accounting. With a chart of accounts. With all the numbers. And we did that for years.
Seven plus years on a monthly, quarterly basis we were crunching and grinding. Down in the basement sitting at our little computers stuffed in a corner and working through the numbers. Because I wanted to learn that. I didn't want to hire it out, because I wanted to accomplish mastery of numbers, and of accounting, and of bookkeeping, and of keeping track in the business.
I you caught one of the other episodes, I talked about the book, “The Millionaire Next Door”. And in that book, read it if you can highly recommend it. I'll give you the nugget to take home with it is two words: Keep Track. That’s it!
These guys interviewed dozens and dozens of millionaires. And there's dozens and dozens of lessons in the book but the key piece of that whole entire book is two words: keep track. That's what millionaires did. Folks that accumulated wealth in a predictable fashion kept track. I call it “KT’ing”. The acronym for “keep track” those two words is K T and I just add a little apostrophe ‘ing on the end: KT’ing is keeping track. Right.
I encourage you to do that if there's one thing you got from this today that's it! Right there! Mic Drop. Keep Track and that's what we're talking about so macro numbers, micro numbers, those are those bigger macros the bigger numbers micros the smaller. And then there's the qualitative like what's the experience around those numbers. I want to give you kind of the big picture view of what to do with numbers. Because that is a question they get a lot is, what do I do with the numbers Tom? That’s what I get when I chat with and talk to entrepreneurs and clients that I work with. Nice. What do we do with it?
2. Qualitative and Quantitative: This is where qualitative and quantitative things come in. Qualitative is the “quality” of the experience. So for example with customer service, check some numbers there. Get into some micro numbers of what's going on with your client experience. Start tracking numbers of what returns are. And then figure out why is that happening? Why am I getting so many returns here? That's your challenge. Okay, let's put a number on it. Let's start keeping track! KT’ing: Keep Track. Even as simple as I mentioned earlier in the series here. It's even as simple as tally sheets. Of going, 1234…5, 1234…5. And crossing off and just keeping track of what's happening with client experience, dig into that client experience, what's the quality of it. What's a metric what's a number we can track here.
I don't know what it is for your business, but figure that out. You can I mean you're running it it's your business you get it. Go into the experience of whatever it is. Maybe it's an operations thing. Maybe you have a lot of defects in your in a process where you're making a physical product. Dig into that. Maybe you're an online space right a lot of clients I do work with, folks that I chat with, there’re entrepreneurs in the online space. Well, let's dig into those numbers, what's the experience right.
What was the experience after a webinar you did? What was the experience there? Let’s start digging into that. And you start looking at the process. Was it the registrations at the front end? Was it people showed up and had technical difficulties, and could not get on it? Was it people that came and then left before was over? Was it people that… like keep going down the process: they came, they watched, but they didn't buy. Okay. Dig into that. Why? Let’s look at that experience there and what's created around that. Look at all the activities that you've created around that experience. So these are different ways of starting to get into numbers and keeping track.
3. Examples: I want to get into… What are some of those macro numbers? What are those macro numbers? You've got financials, and the big picture that starts to keep track of all this stuff is “Accounting”. The reason why it's the term there (I’ve taken a number of accounting courses at university) and the reason the word “accounting” is used is because accountants “account” for things.
They are the ones that are KT’ing. They are keeping track! Make sense? That's why the word accountant and accounting is the term. They are the keeper trackers. And here's a little tip. Here's a little bit of real world experience. Don't be fooled by taking business advice from an account. I’ve hired… I had a team of 90 people in the financial business. Like I get numbers. I get financials. I had a dozen accountants that worked for me. Not doing accounting, but they were servicing clients with the products and services that we had. I was like their boss. And they often… I gotta be careful here because I want to be respectful. They're doing a lot about business but they don't necessarily understand business. And here's why.
Someone who's accounting for things is always looking backwards. Accountants look backwards. They look, and they do an *historical* account of your business. They don't look forward. You as the entrepreneur are looking forward. So when you sit down in your talk with an accountant… hear me on this! This is big!
You're using similar words. Same words. Different meaning. Because both your contexts, are completely different. The accountant is looking backwards. And you are looking forward. You're looking in two different directions. I'm not criticizing it at all. Okay, hear me on that. Accountants are awesome. What they do is awesome. They're very wise. They're very smart. They have a fantastic role they play and they can give you a lot of insight in your business, but hear me on this: their perspective, their mindset, their paradigm is to look in one direction which is backwards and historic.
Your job as an entrepreneur and your role is to look forward. So quite often conversations miss each other. You'll be discussing something. You'll go yeah yeah. Then they'll say yeah yeah. But it's like, sheeew, you missed. You didn't connect. Right. Just be mindful of that. Okay, back to macro macro micro stuff.
Here's the thing. We start to capture all these words that you hear, and start to know them on your financials. Pull out your, I was going to say monthly statements. But for most of you, you probably don't have monthly statements, you probably have like an annual statement. If you're an online entrepreneur that's probably the only time that you look at financials is when you get them from your accountant. When you do your tax return. If you're even up to date on your tax return and if you're not you probably haven't looked at it for a couple years. No!
4. Macro Numbers: If you want to get more systematic slash predictable. Step into what I'm talking about here. Get to know some of these words. Here we go. There’s a whole big list. Say of sales revenue. There's a macro term. We're talking about macro numbers here. And so, when it comes to financials sales revenue that's, that's a big broad stroke right. That's a big number. Knowledgeable to you probably. Easy to track. Track it. Pay attention to it. On more than a quarterly basis. If you're just looking at your numbers, annually. Buuzzz. Wrong answer. Get into them deeper. And do them more frequently. Even if it's the same number. Why?
And here's why I wanted to crawl into my business, and do the ugly work of even data-entry. My Mom and I sat for hours and hours inputting. I got binders big thick four inch binders, that keeps track of all paper, and I would sit and grind through all that. Why? Because I understand how financials worked. How spreadsheets worked. How the numbers worked. And to be able to run my business by the numbers. You talk to any successful entrepreneur that is actually being really successful. They understand numbers, and they're able to run their business by the numbers.
You give me a financial statement, I can sit and look at your numbers and I can probably bump, just by switching a few little things around with you probably not doing much of anything different, and give you net profit bump of several points
of up to 5%. Maybe 10? Two or three? Seven or eight? Because I get numbers. You need to get numbers!
And here's some of them: sales revenue, cogs. If you don't know what that is, you gotta know. Cost Of Goods Sold, right. Fixed variables [rather] fixed and variable expenses. EBIT. If that's foreign to you. I'm going to be pushing the envelope for more advanced folks here that if you understand what I've been talking about up to this point, but if you want to dig deeper and get into some of the accounting to run your business by the numbers. Earnings Before Interest in taxes, get into that. Get into some EBIT.
If you really want to get geeky get into EBITDA! Get into some of that. Sometimes that's used more in the corporate sense, but from running your small business, the exercise here and my point is this: Start to understand, keeping track, how the numbers work, then specific numbers. Start to dig into them, because we're talking macro here, what we're going to talk about next is micro.
So, get into these different numbers here and they're familiar to you you're watching and looking at what's your big top line: sales revenue. What’s your bottom line: your profits. What's in between all that stuff: COGS, Cost of Goods Sold, fixed expenses, variable expenses. And then like I said to get geeky get into earnings before interest and taxes. And then earnings before interest, taxes depreciation and Ahhhh Adjustments. That's really getting granular in your business. Then if you're getting into that kind of stuff, you are creating predictability and systematic experiences that are fantastic!
5. Micro Numbers: Let's look at some micro stuff, and breaking down into these areas. Now this look at the bottom, and kind of work up earlier in this episode today. Part Three here. I talked about customer experience of getting into that deeper and just starting to pick a number of what the experience is. Do you see the difference here? We’re talking about like geeky hard numbers. And now I'm using this phrase of “what the experience is?” That becomes important, because the activities and actions that your customers take. And then that you take. That's the interface that starts to really be meaningful.
You start to influence revenue that either happens or doesn't happen, right. So, start tracking these little experiences. This is how you start to systematically get your business growing and predictably creating revenue and growth, and serving your client. Are you going to serve deeper?
I was working with an organization, a month ago. And it was so disheartening. Because they're a group an organization that is doing like a heartfelt almost charitable service in their product and experience. And I was shocked that there was such heart centred people that had no regard for their clients. Like, it was just such a zig and a zag. And they weren't money hungry. They were just so into providing their service. That's kind of where their line of sight stopped. I was trying to point out to them “you don’t care about your customers.” All you care about is this wonderful awesome service you provide. Which is great and good but you got to care about your client more. They just worked and couldn't and didn't even have a system to keep track of their their clients.
And it was just the growth was a real struggle for them to move forward in their business because they didn't historically keep track of who their clients are. They didn't have an email list. I thought they'd have a list of like 10 or 20,000 people, there was 400. What?! So, getting into the interface to the experience, and you start to uncover the things that are happening, or not happening with you.
6. Examples: So, how do we break down these micro numbers. What the micro numbers show up with. So that was a customer experience at the bottom, we're going to bounce back up to the top. [See show notes for the list being referred to.] Your operations right. Maybe you're tracking more detailed things in your operations. Because you see these, these bigger sheets here… when we talked about the macro with financials, each one of these things: sales revenue, Cost of Goods Sold, fixed expenses, variable expenses… all break out into deeper things in your business.
As your accountant is keeping track of those things for you, as your bookkeeper is, as you are, maybe you're the bookkeeper. You keep track of these things. And you can then dig deeper down into an operations area. Or customer service. Your chart of accounts as a business, all the things that you spend money on in your expenses. That is tracking tons of things in your business now there's standard things to track. And then there's custom things to track. For you specifically if you want to keep track of something just add a line item, add a chart, add a line item into your Chart of Accounts and start tracking it right.
Maybe there's customer service numbers that you want to keep track of. Maybe there’s… there is sales you got to keep track of sales. You’ve got to keep track of marketing. And then inside each of those we can blow those out and get even more granular. Take sales for example. You can get into the whole experience of sales tracking. Love that stuff. The calls made. The reaches made time spent on the phone. Time spent out in the field. Pretty general right maybe that's something that is significant to your business.
Maybe on an online space it's the number of clicks on an ad that you ran. Maybe it's number of clicks in your social media with a post that you made. Maybe it's right… start filling in the blank. In the online space there's tons of ways to track numbers with lots of tools that can be baffling and bamboozling. And it's sorting out and through what actually is important for you and your business.
7. Wrap up: So keep track of numbers and the history diving into these things and get quantitative. Get into that experience where you are creating meaning behind the numbers. Fill in the blanks right. I'm breaking these into five areas here, and there's just tons of many more areas that you can track, and that becomes important.
I want to leave you with this. As we wrap up. Numbers are one of the ways of KT’ing: keeping track in your business. And to the extent that you are keeping track, is the results that will begin to show in your business. And you can get as geeky and detailed, or as broad as you want, but find what works for you. There's standard procedures that are going to be working. [Reach out and ask me how!]
And if you're new to this, start learning what those are. If you're advanced, start dialling it in. Quit putting it off. Quit thinking you “just know”. I've been there. Quit thinking you just know. I was successful in business, had lots of revenue. I thought I “just knew”.
There's always something more granular that you can tweak that you can improve on. To make your life and your business more smooth more enjoyable, create more impact, create more revenue whatever your goal is, you can start to do it by using numbers. So embrace those numbers.
In this series we've talked about the why. They are important. That bigger picture piece was part one. And then, in part two, we looked into the qualitative side. And in part three here we've looked at the quantitative side.
Go back and watch these if it's something you're interested in, and reach out. If you've got questions reach out to me. Connect with me on social. Send me an email. Hit my website at TomBirchall.com. I look forward to catching up with you soon! Reach out! Connect!
Thanks for listening. If you enjoyed the show please rate and recommend. Highly of course! On iTunes. On Overcast or wherever it is you subscribe to your podcasts. You can get more great information on this episode, it’s show notes, and our other episodes and shows, at TheProfitableMaverick.com. That’s The Profitable Maverick.com. Until next time, get out there, live more, love more, and be a more profitable Maverick!
- Book: The Millionaire Nextdoor by Thomas Stanley and William Danko
How often do you look at your numbers? (Weekly? Monthly? Quarterly? Annually?) What insight did you gain today about systematic and predictable profits?
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