27 June 2016

Financial mastery is not just about looking at numbers of past performance

In the game of business, we need numbers. If we don’t know the numbers, then we don’t know the score. And if we don’t know the score, we don’t know if we’re winning or losing. And if we don’t know if we’re winning or losing, then what’s the point in playing?

Now unfortunately, for far too many people, financial mastery constitutes getting your accounts at the end of the year from your accountant. But let me ask you a question: When you’re looking at those accounts 6-7 months after the year is finished, what can you change about that year?

Nothing. We can’t change a thing.

And that is why it’s not acceptable as financial mastery. When they fly to the moon, they make approximately 60.000 minor adjustments based on the data that they’re reading. And that’s exactly what business is. Constant adjustments keep the business going, but without numbers, how do we know what adjustments we need to make in real time?

Numbers are the language of business. And if we don’t know these numbers then we are flying blind. Sooner or later, we’re gonna hit a brick wall.

Another reason why people shy away from financials is because it’s the dark art. We don’t like numbers.

However, no matter how big an accountancy book is, the number of pages business owners need to understand is just one. Just one. And as long as we can understand that, we pay our good accountants and advisors to take care of the rest of it. Let me tell you: If I can understand it, anyone can.

The key to financial mastery is budgeting and reporting. We need to have those numbers so we can report back and make the necessary adjustments on an ongoing basis. The very least that we need is a profit and loss account. It’s simpler than you think. All that shows is how we’ve performed on a monthly basis. That’s the bare minimum.

The thing is, financial mastery is not just about what happened. It’s also about planning for the future. It’s not limited to getting accounts from your account system. It involves forecasting. Planning ahead. Setting targets. Programming the GPS with the exact coordinates to go exactly where we want.

The past involves things like profit and loss, balance sheet, cash flow, debtors analysis, creditors analysis, financial ratios, etc. That’s all about past performance. But we also need future financial mastery. Budgets, forecasts, KPIs and financial planning. All of that planning ties up with our personal why.

When it comes to numbers, it’s important to understand the difference between past and future.

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