What is the most important thing you should know when running a business?
(No this is not a joke.)
Note: This applies to ALL agency owners – even if you are freelancer; believe it or not you are running a business.
Is it how to sell? Is it how to deliver your service? Is it about communication? Granted all these things are important and all contribute to the health and overall success of the business – however a business will live or die by whether it can bring in as much money (paid invoices) as it spends (expenditure).
If these two are equal then you are ‘breaking even’ – you have a business but a precarious one.
If it brings in more money than it spends then we are into the territory of profit (yeah!!) and the opportunity to grow and make money.
The most important thing you should know when running an agency business is – YOUR NUMBERS.
You need to know key financial figures – what they are and how to calculate them. These will be the barometer of your business. These are figures you need to measure regularly to know how your business is doing.
Understand them and what they mean. There is no point in calculating the figures if they mean nothing to you. You need to be able to understand them, what is good, what is bad; what is a warning; what means you need to take action.
Analyse monitor and measure By analysing certain figures you can see trends and warning signs as well as opportunities.
Doesnt my accountant do this?
Your accountant can calculate the figures for sure. Many businesses use accountants to report their annual accounts. So once a year. By the time you have this information I would bet that it is too late to do much about it if the figures are bad.
Sure, get your accountant to report the figures to you – you still have to make the judgement on what they mean and the impact on your business. For key financial data I would recommend a minimum of quarterly figures, ideally monthly reporting is the optimum.
Accountant figures are historical – they report on what has happened. They are indications of what could happen in the future but not necessarily.
There is some analysis your accountant won’t do. Profitability of a client or of a job, utilisation rates etc. These are all figures you need to be able to look at and understand to evaluate how well your business is doing. We are now into the realms of Financial Director role who will help you look forward and make strategic decision based on a different set of figures.
Where is your ship heading?
Running a business is like steering a ship – If you do this right – you will end up running a good business in the right direction and get to where you want to go. Do it wrong or not at all then you are likely to run aground or sink completely.
So as an agency owner – you have an obligation to yourself to know and understand the key figures in your business. If you don’t know what they should be then find out very quickly or else be prepared to be in charge of a sinking ship.
We see it on Dragons Den regular where the Dragons ask the ‘numbers’ questions – if the pitchers don’t know they very rarely receive the investment however good their product is.
So if you don’t already – I would urge you get to know your numbers for your business and steer your business on a safe course to success.