A good businessman knows the numbers, a great businessman understands them.<\/p>\n
To understand the numbers ratios are very important.
\nFor example if Sales and Profits were increasing but the Costs are not being kept under control the Net\u00a0Profit Percentage could be deteriorating.<\/p>\n
Another example, both Sales and Accounts Receivable are increasing which is logical if you sell on credit.
\nHowever poor credit control and selling to customers who will not pay means part of the Receivables will\u00a0be Bad Debts. You could be selling your way into liquidity problems and bankruptcy.<\/p>\n
A number has little significance on its own, it needs to be compared with another to give it relevance.
\nSales of $1 million sound good, a nice round number, but what were the Sales last year and, more\u00a0important still, are you making a profit at that level of Sales?<\/p>\n
As I mentioned in a previous blog, managing just using the financial data is like driving looking only in the\u00a0rear view mirror.
\nFinancial data is historical and loses \u2018value\u2019 for decision making with age. Trends need to be identified and\u00a0acted upon – the number of potential customer contacts, the conversion rate into orders and the average\u00a0order value will be future sales.<\/p>\n
You may not be good remembering numbers. Don\u2019t worry, think about them in a different way.
\nLet\u2019s assume your Sales were 100, your Cost of Sales 30, Salaries 25 and Other Expenses 25.
\nThinking about it as a pie chart you could visualize better that your Cost of Sales was 30%, your Salaries\u00a025%, your Expenses another 25% leaving a Profit of 20%.<\/p>\n
![\"numbers1\"](\"http:\/\/www.success-academy.org\/wp-content\/uploads\/2013\/06\/numbers1.jpg\")
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