Financial Foundations, Part 4 – How to Change Your Numbers

20 June 2015
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Categories: Dollars & Sense

This is the fourth installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link.

In the previous post, I introduced the notion that numbers can be changed, and that we can do this either by influencing income and controlling expenses.  But it’s not enough to believe that we can change them—we actually need execute change!  Here are the steps to changing our numbers:

  1. Get to know your numbers, and get to know them really well. We need to know what we’re starting with, right?
  2. Figure out where we need to be. Like any goal, we start by looking at where we are, then looking at where we need to be.  Then we look at how we can reach our goal, which in the case of business is…
  3. Start thinking about how you can manage your numbers. We need to look at profit and cost drivers, i.e., those factors which causes change in revenue or cost. How can we increase our customer base? What can we do about our pricing? Can we increase the number of units we sell? How can we trim expenses without hurting our operations?
  4. Learn the techniques for changing your numbers. These techniques include, but are not limited to… studying product creation and pricing, figuring out how to create marketing messages and increase their reach.
  5. Understand the degree to which each expense either makes or loses money. Some expenses are absolutely necessary because they are really investments in your business. Other expenses don’t do anything to improve profitability.  Know which is which.  And in some cases, the same type of expense can be an investment or waste, depending on the situation.  For example, I like to talk about our overnight courier expenses. There are times when they are investments, and there are times when they are wastes of money. So develop a perspective that asks: “Is this expense in investment or waste?”

Remember… we need to make money, we need to control our bank accounts, we have the power to change our numbers in our favor, and now we know the principles on how to change them.  Coming up are my thoughts on management—the business, our money, and ourselves.

P.s. As a bonus, here are some numbers you should be thinking about:

  • The number of customers you have
  • The number of units you sell
  • The price you charge
  • Your marketing message and its reach
  • Your expenses and expense types
    • COGS
    • Overhead
    • Debt service
    • Capital investment
    • Personal expenses
    • Taxes