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How to understand the financial reports you are looking at
I find a lot of business owners and entrepreneurs have access to a lot of data these days, but they don’t review it.
Why is this?
Number one, they don’t have time.
Number two, they don’t really understand what it all means.
When I first got into business, and keep in mind I’ve got an accounting and finance degree, I remember thinking “how do all these numbers fit together?” It was like a jigsaw puzzle, which I didn’t really understand. And it can be frustrating for all of us, as business owners, because we always hear it’s really important that we make data-driven decisions, it’s really important that we review the numbers and that we don’t neglect that side of the business. But no one was ever taught how to do this, a lot of us are self-taught. And even those of us with degrees still have to try and work it all out.
So what’s really important is understanding the following:
Number One: Get your reporting in a simple format that makes sense to you.
What I mean by that is I’ve got some clients that love spreadsheets, I’ve got others that look at a spreadsheet as if it’s hieroglyphics to them, but if you give them a graph, they understand. You’ve got to represent your data in a way that’s meaningful to you.
Number Two. You must understand what the numbers mean and how to piece them together.
A big mistake I see is people looking at certain numbers in isolation. But the reality is, a number in isolation sometimes can be meaningless.
Number Three. You must decide on the periods which you’re going to compare.
Are we looking at this on a daily or weekly or monthly basis and then what are we comparing that to?
Number Four. Are we comparing it to any sort of KPI or industry benchmarks?.
When you follow the strategy above you can easily understand and interpret the data in front of you. It’s so refreshing when you understand the game of business at a whole new level, and it’s critically important.
If you need some help with this, please feel free to reach out, we’re happy to provide you any kind of assistance that we can, even if it’s just jumping on a free call with us and we’ll go through your reports with you and just make them a bit easier to interpret, help you understand.
Keep in mind, entrepreneurs typically neglect this and don’t have a big understanding, but those that take the time to look at it, they’re the ones that succeed and fly and understand their business at a whole different level.