Close The Gap!
Often when I begin working with a new business and their financial data, there’s a big gap between how that business owner has just described in words what they do, what their website or social says they do, and what the data in their numbers tells me. There’s often a total disconnect between how they tell me their business works and how Quickbooks (or whatever software they’re using) is reporting their results back to them. I totally get it: after all, bookkeeping is not high on most entrepreneurs’ Love list (more likely top of the Shit I Have to Do But Hate list), so we often just take what the software serves up, get it done, walk away.
The problem is:
→ We end up with numbers that aren’t telling the same story as what we’re telling our clients about what we do.
→ With numbers that don’t connect with what we really know about how our business works.
→ With financials that don’t paint the whole picture of all the “lanes” the little car that is our business is driving in, so it’s harder to understand what kind of mileage you’re getting on that metaphorical car on that particular route, let alone arrive safely at your destination. So many vehicle analogies possible!!
The bigger the gap is between the reality of your business and how your numbers depict your business, the less useful that data is for you. The more you have to qualify the data you’re getting out of your Quickbooks or Freshbooks or Xero or whatever you’re using — as in, “well, it’s REALLY this number PLUS that number LESS this over here” — the more likely it is you won’t rely on it, let alone leverage that huge power.
Closing that gap, having no gap, is so rewarding — to me (because: order), and to clients who can then see more clearly and make strategic decisions, like:
Example 1. Deciding What (Not) To Sell. If you’re a photographer who does wedding photography and corporate photography, how much better would it be to be able to see your last year’s income not just as one big undifferentiated Sales total on your Profit & Loss, but split into 2 separate accounts: Weddings or Corporate. From there you’d know that although 80% of last year’s income came from Weddings, that 20% coming from Corporate didn’t eat 40 weekends of your year toting around heavy camera equipment and dealing with the mothers-of-the-bride. In fact, you could dig deeper and see that it only took you 3 clients to get to your Corporate total, as opposed to all the personalities and deliverables you had to juggle to get to that Wedding income. With that data, you’d decide (true story!) to invest more in building out Corporate on your website and dial back Weddings, to give you more time at home with your family and fewer weekends hustling across the State. (*And the following year, you’d make more with less hustle, by dialing up Corporate, dialing back Weddings.)
When your reports match the reality of how you’re earning, then you can make smart decisions about what you sell. And what you don’t.
Example 2. Breaking Free of your Top-Line Income. Oh, 2020 was such heartbreak for so many. And for many small business owners who could no longer operate as they used to and saw their income plummet, oh, so disheartening to see their Income drop by 50%. Except this.
For several clients, when we were able to go through their customized reports that reflect their lanes, or lines, of business, including the costs associated with those programs or offers, then we could see, traveling all the way down their Profit & Loss Statement, from Income through Cost of Goods Sold through Operating Expenses, to their all-important Net Operating Income, and see that — WAIT A MINUTE! — they actually did better. What? Not being able to offer programs that were actually expensive to run, meant these businesses actually had more Net Income available on 12/31/20 than they would’ve had had they continued doing what they were doing in 2019, which had seemed immutable, permanent, like the only way their business could operate.
When your reports not only match the reality of your business but also deliver you a clear sense of your true profitability, then you’re free from the obsession with top-line revenue and focused on what actually really matters to your quality of life: how much you get to keep.
Good stuff, right? Closing that gap, so that your financials are truly meaningful to you as real reflection of how your business works and it’s doing, is so important. And puts so much power over your numbers where it belongs: in your hands.
If I can help you, answer any questions, clarify any bit of this as it applies to you, email me, firstname.lastname@example.org.