So You Want To Start a Business? A Note To 23-Year-Old Me Part 2

Continued from Part 1

2. Learn some basic accounting terms and use them as tools. You understand the importance of delivering a great service and an outstanding customer experience, and you're going to get excited about promoting and growing your business. I know the last thing you want to do is to slow down, crack open a book (or open a browser these days), and spend time learning accounting terms. Do it anyway, make time for it because it will keep you away from danger as well as accelerate your success. Don't think you can just delegate this to your accountant or business partner because it is "accounting stuff". I want you to understand the following concepts at a minimum. Gross profit (GP), Gross Margin (GM), EBITDA, SG&A, Income Statement, Balance sheet, and Statement of Cash Flows.

These terms will be the measures that you will use to get a realistic picture of how your business is doing. Think of them like gauges on an airplane. They tell you how fast you are moving, how high you are flying, how steep you're climbing (or descending), and how much fuel you have. Learn what levers and controls you can adjust in your business to impact each of these measures. Study them intensely after you close each month, and make adjustments to get the results you want. If you aren't seeing reports of these measures each month, this is an indicator of a big problem in how you run your business, and it's every bit as important as the customer facing aspect. If you aren't getting a timely and accurate close to each month, it's an even bigger indicator of problems. Failure to pay attention to these measures is like trying to fly an airplane blindfolded. Failure to get a solid month close is like flying the airplane blindfolded, hearing an alarm, and doing nothing about it.

Use these terms to develop a core set of Key Performance Indicators (KPIs), that you can rally your team around. Make information on these KPIs accessible to the team, and use them to set goals and incentives. Not only will KPIs help you understand what is working and what isn't, but they will help you project forward into the future. If you want to grow successfully, these projections will become critical. More about projections in part 3.


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