Imagine playing a basketball game and not knowing the score. You are in the final minute, but don’t know whether you need to score more points or attempt to run out the clock. Victory or defeat depends on your decision, yet you don’t know what actions to take.
Imagine running your business in that manner. Sounds silly doesn’t it? Yet many small business owners do exactly that. They don’t know their numbers, and numbers are the scorecard for their business.
For example, do you know your true overhead costs? If you claim you have no overhead you are sadly mistaken. Do you advertise, have signs, or business cards? If so, those are overhead expenses.
Do you carry insurance? If so, that is an overhead expense.
Do you own a vehicle? If so, the wear and tear (depreciation), gas, insurance, maintenance, etc. are overhead expenses.
Do you have equipment? If so, the wear and tear (depreciation), gas, maintenance, etc. are overhead expenses.
Do you use any paper, or forms, or postage, or office supplies to conduct business? If so, these are overhead expenses.
If you do not know your true overhead then you cannot recover that overhead in your pricing. Which means, you are not charging enough money. Which means, your business is not as profitable as it could be and should be.
Do you know the return on investment for your advertising? If not, how do you decide which advertising is worth continuing and which should be dropped?
Do you know your gross profit? Do you know your net profit? Do you know your closing rate? Do you know your cost per lead. Do you know your average sale price? If not, how do you make decisions? How do you know whether to run out the clock or attempt to score?
If you are like most small business owners, your answers to many of these questions is “no”. If you are like most small business owners you don’t know your numbers. If you are like most small business owners, you are making decisions blindly.
It is possible to make money without knowing your numbers. It is also possible to win a basketball game without knowing the score. But your business is not a game and the consequences are much more serious.
