The Story Behind The Numbers
Dating back to the beginning of time, stories are as old as life itself. In terms of spreading messages, passing down content and data and sharing life’s past with the next generation, storytelling is the first form of communication system we can find. Cave drawings, the earliest stories, are not even in words, but in pictures. Later, the Egyptians used a writing system of Hieroglyphics to represent these esoteric ideas.
In some ways it seems as though all ideas are esoteric in nature, until broken down by their lead communicator. In other words, consider that an idea or story is only understood when described by its author. If that is so, then numbers are just another set of ideas that are only fully understood when described by their creator.
Managers, employees, clients, vendors and lenders can all contribute and influence the numbers you see in your financials. However, only one person is accountable for it all. Do I even need to say it? Yep, it is you — the owner, leader, chief bottle washer.
When it comes down to it, you are in control of your own story behind the numbers. Even with the best of systems, people are going to react as they will and do what they want. Still, you hold the power of understanding how to read your esoteric idea, via your numbers to understand the past, learn the present and guide the future.
Every great business has its verbal story; how it got started, where it is going, what the culture and brand is and who the key characters are. If it doesn’t, we better talk ASAP. And while your words are important, your numbers are your validation. Without understanding what the numbers are telling you, you can’t ever quantify what your business is actually doing or not doing.
Being able to validate a number on a specific financial is great. Knowing what you actually spent on a certain expense or that you paid an employee a particular dollar amount is important. But that is just technician work. The checks and balances that can occur through documented systems can happen with a low level bookkeeper.
Understanding the common goal of the company, department, and positions versus what is being produced is great and fulfills the management work needed to tie the story to reality.
However, the ability to both read the story against the future needs of the company and rewrite that story through learning new strategies to continue to create the ending one desires — that is the Entrepreneurial work. This is what is needed to run your business by the numbers. Having achieved that, you can understand, read and share the story they are telling.
Every set of numbers has a story. Just like Jean-François Champollion deciphering the allusive Egyptian Hieroglyphics, you too will learn what your story is.
Missing key systems such as a leadership vision or budget can make the challenge very big. If you do not know where you are going, then you don’t know where you need to be and hence, what the story should be saying or not. The fun part of this is you are the author. You get to write this story any way you want, not the other way around.
So, what do want the story to be? How do you want to end it? Many great authors will tell you their best strategy is starting with the ending and working backwards. Doing so will allow you to write the middle in exactly the way it should be to deliver what you need. Using key systems discussed below will let you do exactly that.
Vision: Having a declared and working vision speaks to the end of your story as we were discussing earlier, and is considered the Holy Grail by all successful leaders. With the end defined, you can write and rewrite your story to move towards it quickly and easily. Now as you write your story via your numbers your numbers could help rewrite your vision. Fortunately or unfortunately at times, reality creates a different version of your vision than you expect. That is reality and unless you live in the land of OZ something you have to accept. However with nothing clear at all, you bounce through your decisions randomly. This creates the confusion, frustration and disconnect that many leaders feel when approaching their business aimlessly. Use the vision to help you understand where you want to be. Let your numbers tell you how close or far off you are depending on where you land. With practice, you will understand what needs to be changed to stay on course.
Budget: Your budget is a numerical version of your vision. While your vision is generally written within a 3-5 year window, your budget is created on a yearly, quarterly, monthly basis. A working budget is both a strategy and reality based tool. You create a version that supports you achieving your vision and month after month you use it to quantify and identify how well (or not) your decisions panned out. With each review cycle, the outcomes will point to what needs to be re-written to ensure a (hopefully better!) version of your budget.
Profit and Loss: Here are your chapters to this long novel called your business. Think of each month as another chapter that has been written. While your budget allows you to do the rewrites of the potential future chapters, these have gone to print. So, whether you like it or not, this is what is. However, you do want to confirm these numbers for accuracy, detail and grammar. This is the technician work we spoke of earlier. While these may be at the printers, you have one last chance just to ensure they are accurate. This is usually where people identify theft has been occurring, mistakes their bookkeepers are making relative to reporting, or systems issues within collections or accounts receivable not happening as quickly as they could. Understanding how profitable you are and what is affecting that profitability gives you a better handle on the healthy growth and stability of your business.
Balance Sheet: What we said about your profit and loss statements can be said about your balance sheet as well. The balance sheet is similar in nature; just with different information. A balance sheet represents assets and liabilities. Generally a strong profit and loss statement can assure that a strong balance sheet will be created, but not always. Make a bad equipment purchase? Wish you could just get rid of that empty lot you thought would be great storage? Borrowed money 10 years ago without thinking of the repercussions? It will all show up here. Use this part of the story to understand how to create financial stability via your profit and loss statement. Get more profitable and use it to create the balance your story needs.
Knowing how to read your story is empowering. Being in control of your destiny through key systems such as vision and budget allows you to rewrite as necessary to ensure the “happily ever after” ending that we all desire. So, what do you want? What do you need? What decisions do you make to ensure success?