Are you asking better questions?
April 3rd, 2019 by Morna
How often do you wear your CFO hat?
You know, the one where you look at the numbers. I realize that lots of creative types do not want to look at numbers.
After all, what could be creative about numbers? They are straightforward, no shades of gray here.
True, the numbers in and of themselves are not creative.
What is creative is what you get to do as a result of looking at them.
You can create new designs or new classes. You can bring on an apprentice to help you. You can look for new markets for your art. You can look at ways to expand and make a bigger impact.
The problem is that you have to know what the state of your business really is.
And the only way to do that is to look at your numbers.
What do you look at?
First, you want to look at your Profit and Loss Statement. It’s also called your P&L.
You want to see what profit you have made. That would be your revenue less your expenses. The money you bring in less the money you pay out.
You may or may not like the numbers that you see.
Remember the numbers are about your business, not about you. Hold the judgment.
What do you do with what you see?
You learn to ask better questions.
You have two options to change the results of your P&L — increase the revenue side or decrease the expense side. Both require you to dig deeper into what makes up the numbers.
Let’s look at the revenue side. You have three options here:
increase the volume/numbers of sales,
raise your prices, or
improve your mix of business by selling current customers more.
Now take those items and dig deeper by asking yourself questions.
If you take increase your revenue by selling more, how will you go about that? Where will you find these customers? Do you need to release a new product? Do you need to run a class that you know will bring in cash? What products are your big sellers?
You would do the same exercise if you want to raise your prices. How much can you raise them to meet your needs? How does this meet with the competition? Can you decrease some of your discounts?
If you want to improve you mix of business, you look at how you can up-sell to your current clients.
You will do the same thing on the expense side. If you want to lower your expenses, you can improve your efficiency or avoid some costs. Again, you dig deeper into what the numbers show and ask more questions.
In both cases it is about looking at what drives the results.
You cannot manage the end result, you can only manage your actions, metrics, and decisions that produce that profit. And, once you see what they are, it’s time to get creative.
It’s your turn!
Asking the right questions leads to creative solutions. What questions are you asking and answering?
Tags: accounting questions, Expenses, income, P&L, Profit and Loss, revenue