Know Your Numbers (KYN)

Accounting is the language of the business – Warren Buffett

Numbers tell you how well your business is doing. Should you not spend some time to understand the numbers and be in control of your finances? If yes, then please read:

An entrepreneur should have a clear view of three key numbers irrespective of whether the business is in manufacturing or services. They are

1. Revenue – It’s the money generated your business. It is called by different names i.e. Sales, Turnover, Income etc.1.

2. Profit – Difference between Revenue and the Cost (expenses incurred for the business). It is also referred as Bottom line. There are multiple components like Gross Profit, Operating Profit, Profit before Depreciation & Amortisation, Profit Before Tax etc.

3. Cashflow – The net amount of Cash and Cash Equivalents (Bank balance, Bank deposits etc.) that comes in and goes out of the business during a given period. A positive cashflow means the Company received more than what it Spent (expenditure, investments, Finances like repayment of loan, interest etc.). Cashflow is categorised into Cashflow from Operations, Investing and Finance.

To be meaningful, these numbers have to be over a given period (Month, quarter or year). The numbers tell the story of how the business has performed over a given period.

Giving a bunch of files to the Accountant/Auditor and let them figure out what the business has done, how much tax has to be paid and what should be given to the Banker may work only up to a point.

As the business grows it is important to keep track of the numbers and this is primarily the job of Accounting and Finance function. The business may manage the function in house or outsource or a combination of both, but keeping track of the numbers and maintaining them up to date is essential.

The Business owners may not have time to look at these in detail, so in order to have a better control, some key numbers could be put together and presented to the owners for them to understand where the business stands, analyse and take decisions. This is called Management Information System (MIS).

For a successful business, having the right systems is essential. A right system is the one that ensures capturing of data in a timely manner, helps to organise the data, analyse them and take timely decisions.

Know Your Numbers (KYN) is critical as it provides clarity and confidence while giving direction to the Entrepreneurs/Business Owners/Management. It is not an option and leaving it a little later results in “playing blind.”