Loving The Numbers

By: Quang Bui, Motherbook Digital Memories

http://www.motherbook.ca/index.html

As an entrepreneur, you have to learn to love the numbers, or at least get to know them a little.  This is what I learnt while attending a Marketing/Finance workshop at KEDCO last month.  Rebecca Darling of The Entrepreneurship Centre, and Michael Darling of Queen’s University expertly cut through what it means to start your own business and how using finance can help new entrepreneurs like myself realize that there’s not  a single clearly defined method to earning a business income.

We’re asked from the start, what it is about starting a business that makes it so appealing.  Some common responses like work flexibility, control over business decisions, financial opportunity, all come to mind.  We’re then asked to draw a pie chart, divide it among four personal skill sets (finance, marketing, sales, communications), and determine which one we personally feel needs improvement on.  For myself, sales immediately comes to mind and it’s an important aspect of being an entrepreneur, but that’s a discussion for another day.  What I realized is that although I gave finance a healthy slice of the pie, it’s something I have overlooked and really haven’t been paying much attention to beyond the initial stages of starting a business.  If I were to redraw the pie chart according to actual time spent on the four skill sets, finance would more likely be visually represented by the pie crust crumble that’s fallen off my tin pie pan.  This was quickly made evident by Michael Darling’s talk about loving the numbers.

Loving the numbers is more about realizing the different ways you can tinker with financial variables and continue to tinker with them as your business progresses: cost variables, expense variables, revenue variables, population variables, even business structure variables (whether you are a sole proprietor, a partnership, incorporated, etc.)  Many assumptions are made when forecasting income for the week, month, or year, but what I learnt is to sometimes work backwards and start by determining what a reasonable amount of income you want to make after accounting for taxes, overhead, cost of goods sold.

You can get to the same end result by decreasing the cost of a product you sell, or by increasing the retail price of that product, or increase the number of people you service, etc.   By being creative and changing the numbers, you can achieve similar forecast results or forecast results that are at the complete opposite ends of the spectrum – one where you’ll be living it up like Bill Gates vs. one where you’ll be counting on Kraft Dinner.  What’s important is that you are made aware of the different financial scenarios so that you don’t feel like it’s either going to happen one way, or no way at all.

Michael Darling’s real-life example of a Sock Store that based its finances on what Wal-Mart earns per square footage of retail space shows how a simple assumption for a store selling socks can lead to extremely misleading forecasts.  Assumptions are a necessity when making income forecasts, which is why being careful not to compound one assumption on top of another is important, and approaching the forecasts at different angles can give you a more realistic outlook on the business.  It’s easy to the see the faults of a Sock Store, but the challenge in looking at the numbers and seeing if they can be made to work is where the real fun is.  That’s where the professionals come into play.  I’m still working on loving the numbers. 

Written by: Quang Bui, Owner of Motherbook Digital Memories

http://www.motherbook.ca/index.html