One of the most eye-opening parts of a financial crisis like this (or really, the fear around it), is – you find out pretty quickly whether or not you’re on top of your numbers.
And I’m noticing lots of successful entrepreneurs realize for the first time…
They really don’t know their numbers!
(If this is you, please know this does NOT make you “bad” at business! But also, consider this your wake-up call.)
In this episode, I’ll breakdown the reasons why your accountant should NOT call the shots right now, plus…
- How often you should be reviewing your numbers
- Exactly what I review during every financial check-in
- And why you probably don’t need a CFO yet anyway!
Listen in to this 15-minute episode, and then share your ‘a-ha’ moments over on Instagram (@emilyhirsh)!
[1:58] This doesn’t mean you’re “bad” at business…
[3:36] You have to look at these numbers every month
[6:09] Now, this doesn’t mean you have to do your own books…
[7:43] Here’s an example… (i.e. why you need to know your margins)
[10:10] Here’s what I do every month…
[12:02] Your accountant shouldn’t call the shots! (And P.S. You likely don’t need a CFO yet.)
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Hello everyone. Welcome back to the podcast. I’m excited today because we’re going to talk about knowing your business financial numbers. With everything that’s going on and businesses sometimes getting into a scary place right now, sales going down, economy, not knowing what’s going to happen, the unknown, I have noticed a trend in many businesses that, they realize they don’t know their numbers, and not just, we talk a lot about knowing your marketing numbers, but not just that they don’t know their marketing numbers, that they don’t know their whole business numbers.
And then when you get into a situation like this, it forces you to know your numbers and to be slapped in the face with a reality of like, “Hey, we’ve been losing money over here,” or, “Hey, we have to cut this,” or, “This doesn’t make sense,” or, “The numbers are worse than I thought.” And I’ve seen this happen many times. I’m going to basically tell you what you shouldn’t be doing with your company numbers. But I want you guys to know that if you’re in this boat where you don’t know your numbers and your finances, and you’re one of those people who has an accountant or a CFO and they tell you what to do and you listen to them and you fly by blindly a little bit… And I’m not saying that judgmental at all because I want you guys to know you’re not alone.
A lot of people do it, and so I’m not at all saying it like you’re a bad business owner. Instead, I want to shed light on this because I think it’ll help so many people improve the way they run their business. Because I’ve witnessed over the last several weeks some incredible entrepreneurs realize they didn’t know their numbers and they didn’t know their business numbers. And then were hit in the face with it when faced with this economy crisis and sales going down in their company. And what the big message I want to have with this episode is, is your CFO or your accountant or whoever does your books shouldn’t be the only one who knows your numbers, and they shouldn’t be telling you what you can and can’t do in your business.
Now that’s my opinion. I don’t know if people will disagree with me, but I really think as the CEO in your company, as the owner or president or whatever your title is, you should be knowledgeable enough to make financial decisions in your company, and you cannot be flying blindly, counting on somebody else to do your books and then tell you what decisions to make, because there’s no way that they can have the right context to know those decisions.
As the owner, CEO of your company, you have to know your own numbers. You have to, in my opinion, look at them every month. And those numbers mean, you should have your expenses broken out into a bunch of different categories, and hopefully somebody that you have hired can reconcile them for you. For us, we use Zero, and I’m anal about my numbers. I have categories, crazy amount of categories, to break it all down and know expenses everywhere, from IGNITE to Team to software to marketing to gifts, all the categories, I have broken down.
You should know all of those so that you can look like, “Hey, why is this one way higher?” You can’t make informed decisions unless you have a baseline to make them off of. Month over month, I can easily compare, and we do this in a finance meeting, “Why is one category way higher than from the previous month? And is there something we need to cut? Is there something wrong?” That’s how you notice those expenses and those issues.
Just like with marketing, you can’t make marketing decisions on what you need to improve if you don’t first track and know the numbers, you can’t make decisions in your company on what you need to improve and cut or even scale that’s working, unless you know your whole company’s numbers. Every month, you should be reviewing your numbers. I think you should have a finance meeting where you look at all the major expenses. You have major metrics. Every month we have a finance meeting where I look at our average client payment. I look at our gross and net profit. I look at expenses. I look at anywhere that it’s gone up from the previous month, to make sure that’s justified or not justified, or if I need to cut something or change something. I’m very informed.
That doesn’t mean I’m reconciling my books and I’m doing the accounting software. It just means I’m informed, and that way I can make decisions. I don’t believe you should have a relationship with the CFO. Maybe if you’re a $50 million company… I haven’t made it that far, right? I don’t know what it’s like at $50 million, but if you’re under $10 million, you should be making the major financial decisions in your company.
You should never be in a situation where your CFO’s like, “You have to stop marketing, or you have to leave that mastermind, or you have to cut these team members.” How would they have the context to know what you would need to cut out? All they should be supporting you with is helping you organize your finances. They can get feedback on the decisions, but they shouldn’t be making them for you.
And I’ve seen this happen multiple times in the last couple of weeks where somebody said, “My CFO or my accountant said I cannot keep investing in that,” or “I can not keep that expense.” How can they make that decision? They do not have the context about how much money you make from that or what else that is feeding in your business. Every month you should be reviewing all your expenses, all the different categories in your expenses and making sure there’s no big jump from the previous month, that there’s not extra stuff in there. Making sure you’re profitable.
If you have a funnel that delivers… Here’s another example. If you have a funnel and in it is required delivery costs, whether that’s physical shipping of the product or creating of the product or coaches that you’ve hired or content creation that you have to somehow pay for that, you should know your margin on that product, because it’s not going to be tracked in your marketing just to see how profitable you are in that funnel.
What happens after you get the customer is on you as the business owner to know those numbers and make sure your marketing is still profitable and make sure your delivery isn’t costing you more than you’re paying to acquire that customer or that client. And the only way you know that is by having all your expenses categorized and organized, and you know where everything’s going. Review it monthly and know your expenses.
Another situation I had was somebody came to me and was like, “Well I just found out,” … this is actually a colleague that I know in a mastermind, “I just found out that my funnel hasn’t been profitable this whole time, because of our delivery costs,” is what they said. And I said, well, like didn’t you know those? Those have never changed. And of course I was nice, and they were actually very much like, “I messed up here,” and they’ve gone like a year and not knowing this. Because it just gets lumped into maybe gross profit and net profit.
But honestly sometimes people don’t even know that. People don’t even know how much money they make every month. That’s common. I didn’t until about, I don’t know, three years ago I really got serious about it. But I did go a couple of years where it was like, “Well I know I’m making money. I don’t know how much, I don’t know how much I’m spending,” especially when I didn’t have a lot of expenses that is how I operated. But as soon as I really started hiring a team and having expenses, you’ve got to keep track of it or you will lose track of it, and you will seriously lose money.
I had somebody come to me and say like, “I’ve just realized for the last year I’ve been basically losing money, because I didn’t know my business numbers after people got through the funnel… the shipping costs, the return rate, I think the refund rate was something.” There’s a lot of factors that go into that, and because they didn’t pay attention to those numbers, they’d been losing money and they felt terrible about it.
But this economy crisis forced them to look at it, because they had to. And every month, here’s what I do. First we have a document that’s called CEO metrics. The original template came from Alex Charfen, and we’ve customized it to my business. I’ve added in things like how much revenue per ads manager I make, our capacity, our average client payment. But it has all my important metrics… Our retention rate for clients is on there. All my important metrics that I need to be able to track, and one of them being gross profit and net profit every single month.
Every month I know those numbers. And then I can go into our accounting software and quickly pull a report, because I worked with my accountant to have so many categories that I know where everything’s going from softwares to team to contractors. It’s separated out from marketing to operations to the agency delivery, and I can pull a report every month that shows me the expenses in every category and then the previous month’s expenses. I can see anywhere it’s gone up or down significantly and get some context behind it, to make sure it’s legit.
We also have a monthly finance meeting. My team pulls together a whole report, and we’ve worked to create a metrics that are the key metrics. Now everybody’s business is going to have different key metrics. I could tell you all of mine, but it doesn’t matter. What you need to know is, what are the metrics I need to know in my company to be able to make decisions, and to be informed about my finances and my company and where we’re at? And you should be getting those reports and reviewing that every month so that you are never surprised with something like, “My funnel hasn’t been profitable,” or, “I have to let go this team member because I just realized that we’re losing money,” or, “I have to shut off my Facebook ads because my CFO said I do.”
You never should be in that situation if you know your numbers, if you’re reviewing them regularly. I really believe a CFO or an accountant… my accountant never tells me what to do. He never tells me like, “Hey, here’s my recommendation that you do not spend money here.” That’s my job as the CEO. That’s my job to make those decisions. My team and my accountant just creates it so that I have all the knowledge I need to be able to [make] those decisions.
If you have been in the situation during this economic crisis, during what’s going on where you’re like, “I didn’t know my numbers, and now I just found out something not good,” don’t let it happen again! And the way you do that is by figuring out what are the main metrics? Just like with marketing, what are all the main metrics we have to know to know if something is working or not? What are all the main metrics we have to know in our business to know if it’s working or not, to know if it’s profitable, to know where things are going and to be able to make decisions?
And then look at those every single month so that you’re informed, so that you’re never surprised. I shared, I think on the last episode, one of the first things I did do when this started happening was look to see where can I cut a few expenses? Because I want to make sure we’re being smart. I found only $200 to cut, because I already run my company so slim and so informed about where expenses are going that I just don’t have a lot of extra fluff that I’m just spending to spend, because I’m informed. You can’t make decisions unless you’re informed, unless you have that baseline.
Use this opportunity right now to get that baseline, to figure out where you need to be, what numbers you need to track, what numbers are crucial and important, and then don’t let yourself get in that place again. You need to be able to make the decisions. And like I said, I think this is at least to $10 million. Now I haven’t grown my company past that, so I don’t know. A lot of people say they have a CFO, too, right now and it’s not a real CFO. You don’t need a CFO for a long, long time… just an accountant helping you with your books and your taxes and, for us, payroll. That’s all you need. And sometimes people call them “the virtual CFO” or I don’t know. But you don’t really need a full-time person in finances, definitely not for a very long time.
Become informed, regularly look at it, and then you’ll never be surprised with these decisions. And don’t let somebody else drive them. Don’t fly blindly and look for somebody else’s feedback or what you should do, because it will never be exactly what you need. It might feel good to be like, “Oh, it’s taken care of because somebody else can tell me what to do or make those decisions for me.” It might be the right decision sometimes, but it also might be a terrible decision, and you won’t know. You have to be informed in your business in all levels to make those decisions, to grow properly and to have that. Thanks so much for tuning in today guys, and I will catch you on the next episode.