A couple of weeks ago we presented onstage at Mal Emery’s event about buying, building and selling businesses (awesome workshop by the way!) and over the course of the weekend through speaking with the many various business owners there I was reminded of the importance of business owners being able to clearly interpret their own business figures and understand how to value a business.
This is the one area of business where we constantly see business owners make big and costly mistakes because they have no idea (or maybe they are burying their head in the sand?). If you can’t interpret your businesses figures in a practical way you will really struggle long term in your business and you will make wrong business planning decisions that will hamper your business growth.
What is particularly scary to us is that we see business owners rely on their financial advisors like accountants who don’t tell them until its too late that they are losing heaps of money. When I first became a business broker this constantly surprised me as I would often come across business owners asking for me to help them sell their businesses that were clearly going backwards rapidly to the point of being bankrupt. What actually amazed me the most is that you could see in their figures (that were prepared by an accountant) that the business had been struggling and in serious trouble for several years – why didn’t the accountant start giving them some serious warnings or business advice years ago rather than wait. Often the business owner had no idea until too late and yet if they knew how to read figures in a PRACTICAL WAY they would have been fine and could have made better business planning decisions.
If you are in business or thinking of buying a business, make sure you understand how to read business figures in a practical way and especially how to see any red flags in the figures and what you can do about it. This kind of business knowledge will definitely pay-off for you on your entrepreneurial journey and it’s actually not that difficult.
Why can I say this so confidently? Because ALL the successful business owners we know (and especially those that made millions from buying and selling businesses) could read, understand and interpret business figures and value a business. I was lucky that I got to work with these guys personally and see how they did it. Most had their own unique ways but basically at the end of the day I noticed that you should be able to value a business and work out what the business is doing “on the back of an envelope” as a first sweep and 9 times out of 10 this would turn out to be a reasonably accurate business valuation.
Liz and I are quite passionate on this topic to make sure business owners are empowered in their own businesses to be able to read and understand the figures themselves. So I am looking forward to this weekend teaching our high level coaching clients exactly how to do this at our upcoming inner circle mastermind and boot-camp. I have decided that in addition to the usual mastermind I will run a special session on reading business figures. We are also going to hotseat some of clients figures because as a group I believe we can learn a lot better doing it as a hot seat as the actual owner is sitting in the room with us to explain what has happened in the business (rather than just trying to read off the figs).
Obviously, for the majority of you reading this article you are not going to be at our boot-camp, but I urge you to make the effort understand your figures in a practical way (not some “theoretical” way) and review your figures regularly so that you can make more accurate business planning decisions which will ultimately help you be more successful in your business growth.