The 3 Numbers Every Business Owner MUST Know
It doesn’t take long to feel thoroughly inspired when listening to Marcus Lemonis, star of CNBC’s The Profit, talk about business. He is a wealth of information and has a proven track record of success to back up every piece of advice he offers. It seems that this entrepreneur could whip a dying business into shape, even in his sleep.
If you have watched his show, you most likely have heard Lemonis stress the importance of knowing the numbers of your business.
According to him, failing to know your numbers inside and out is one of the biggest mistakes a business owner can make. As a matter of fact, when it seems clear that a business is even a little unfamiliar with its numbers, Lemonis promptly tells them to figure them out, get those numbers clearly defined, and then come back to discuss business.
Lemonis firmly believes that the most overlooked skill of owning a business is basic accounting. If you are a business owner, and you’re thinking to yourself, “Oh, I have a CFO and a full financial department to handle those matters,” then Lemonis would candidly say in return, “Nope, that doesn’t cut it.”
He preaches that business owners must know exactly how much they are earning, and if they don’t, then they simply don’t know their business at all.
What are these all-important numbers? And can you currently spit them out on command?
According to Marcus Lemonis, the following three numbers should be imprinted onto every business owner’s brain:
1) Annual Sales Revenue
Lemonis believes that if you are unsure of the exact number that your business is making right now, then you simply do not understand your business well enough. Business owners must base this number on a trailing 12 months and not the calendar.
2) Gross Profit Margins
Understanding this number is crucial because it represents the money left over from revenues after accounting for the cost of goods sold.
3) Expenses as a Percentage of Your Gross Profit
It is crucial for business owners to know where their spent dollars are going and to acknowledge whether or not these dollars are generating a profit. Your business expenses must be determined as a percentage of your gross profit, not simply as a percentage of your sales. Why? Because you pay your bills with gross profit, not with revenue.
These three numbers provide the foundation upon which every business decision must be based.
Can you immediately provide an accurate answer for these numbers?
If not, Lemonis would strongly advise you go back to the drawing board, clearly define these numbers, then proceed to talk business matters, both internally and externally.
Quoting Marcus Lemonis, “To not have a solid understanding of how much you make and how much you sell is a crime. To not understand how to make decisions based on numbers is a mistake. Too many people make their decisions based on their gut, but your financial statement is your road map to success.”