Know your numbers. It’s key to survival.
That was a repeated message among speakers at last week’s Dauphin conference, from small farm owners to artisanal syrup makers to those operating long-standing car dealerships.
All stressed the importance of knowing costs of production and staying on top of financials to stay in the game.
Yet, business owners who don’t know what it’s costing them to be in business are all too common.
Taunya Woods Richardson, a successful Canadian business owner who has developed a methodology she calls ‘Nail the Numbers,’ said her key aim when she works with business owners is to help them become solid money managers.
That means thinking about healthier net profits, or, as the case may be, profitability, period.
Many small-business owners aren’t even paying themselves because they aren’t paying attention to it, she said.
“In my experience with the businesses I’ve worked with, and with Industry Canada, the vast majority of small businesses are currently operating, if they’re lucky, at about a one or maybe three per cent net profit,” she said. That doesn’t leave much of anything for a salary.
By contrast, competing larger counterparts typically operate at a 20 to 40 per cent net profit which allows for their further expansion and investment, she said.
Woods Richardson tells business owners to start reversing the way they think about the money they’re trying to earn, and putting net profit as their end goal.
“Instead of saying, ‘here’s how much we earned and, how do we take care of all our expenses?’ and then asking, ‘what is our net profit?’ it’s about thinking the other way… what do you want net profit to be?”
Typically, where businesses lose money and ultimately fail is because they don’t budget to cover real operating expenses.
“Knowing cost of goods is understanding all of the materials and all of the labour that goes into one specific revenue stream and then setting the right price,” she said.
“That then allows them to understand what their sales goals are, and the quantity and the volume that they need to produce.”
Woods Richardson, an expert in behavioural economics, has also helped business owners face their fiscal facts by better understanding their own personal habits with respect to money. All the technical talk about money management won’t help much unless business owners also understand how their own minds are wired, she said.
“You need to recognize your limiting behaviour and habits.”